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Henrie’s Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes....

Henrie’s Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $151,640, including freight and installation. Henrie’s estimated the new machine would increase the company’s cash inflows, net of expenses, by $40,000 per year. The machine would have a five-year useful life and no salvage value.

1.Using a discount rate of 10%, what is the machine’s net present value? Interpret your results. (Round discount factor(s) to 3 decimal places.)

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Answer #1
Annual Cash inflows 40000
X PV factor @ 10% 3.791
Present value of Annual Cash inflows 151640
Less: Investment cost 151640
Net present value 0
Net present value of $0 indicates that the rate earned on project equals the required rate of return
Note: Net present value will be $(40) is case PV of $1 table is used
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