The management of Idaho Corporation is considering the purchase of a new machine

Question

The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability in this situation:
Year Income from Operations Net Cash Flow
1 $100,000 $180,000
2 40,000 120,000
3 20,000 100,000
4 10,000 90,000
5 10,000 90,000
The net present value for this investment is:
a. Negative $126,800
b. Negative $99,600
c. positive $16,400
d. positive $25,200

Explanation / Answer

d. positive $25,200.........(answer)

Years Cash flow Discount PV 0 -430000 1 -430000 1 180000 0.909 163620 2 120000 0.826 99120 3 100000 0.751 75100 4 90000 0.683 61470 5 90000 0.621 55890 NPV 25200

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