Question

QuestioT 2 Attempt due Jun 7 at 11:59pm 2.5 pts 2 Hours, 39 Minutes, 52 Beverage Manufacturing Company is evaluating a plan to possibly update their machinery. The expected cost is $550,000, that is payable immediately. The expected reduction in cash outflow at the end of each year is as follows: Years 1-4 $80,000 each year Year 5 $60,000 The interest rate is nine percent. What is the net present value of this investment in new machinery? Disregard the effect of depreciation and taxes. O-$46,340 O-$75,254. $39.125 -$53,125 Next Previous

Answer 1

When cash inflows are even:

NPV = R ×	1 − (1 + i)-n	− Initial Investment
	i

In the above formula,
R is the net cash inflow expected to be received in each period;
i is the required rate of return per period;
n are the number of periods during which the project is expected to operate and generate cash inflows.

When cash inflows are uneven:

NPV =	R1	+	R2	+	R3	+ ... − Initial Investment
	(1+i)1		(1+i)2		(1+i)3

Where,
i is the target rate of return per period;
R₁ is the net cash inflow during the first period;
R₂ is the net cash inflow during the second period; R₃ is the net cash inflow during the third period, and so on ...

I have calculated the net present value of this data using excel sheets

Present Value Of Cash Inflows (PVIFA) $ 2,98,173

Net Present Value (NPV) $ -2,51,827

net present value of investment in new machinery is -2,98,173 - (-2,51,827)

= -$46,346