Question

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $328,420 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,760,000. The cost of the machine will decline by $110,000 per year until it reaches $1,320,000, where it will remain. The required return is 16%. What is the NPV if the company decides to wait 2 years to purchases the machine? (Round answer to 2 decimal places. Do not round intermediate calculations)

Answer 1

B387 X fx =-1760000+110000*2 A B 384 Year Cash flow PVIF@16% | Present value 385 0 $ - 1.000 $ 386 1 $ - 0.862 $ 387 2 $ (1,540,000) 0.743 $ (1,144,470.87) 388 3 $ 328,420 0.641 $ 210,404.79 389 4 $ 328,420 0.552 $ 181,383.44 390 5 $ 328,420 0.476 $ 156,365.04 391 6 $ 328,420 0.410 $ 134,797.45 392 7 $ 328,420 0.354 $ 116,204.69 393 8 $ 328,420 0.305 $ 100,176.46 3949 $ 328,420 0.263 $ 86,359.02 395 10 $ 328,420 0.227 $ 74,447.43 396 397 Net present value -$84,332.55

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