This company is considering the purchase of a new machine costing $430,000. Thei

Question

This company is considering the purchase of a new machine costing $430,000. Their rate of return is 10%. The present value factors for $1 at compount interest of 10% for 1 thru 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 to determine the acceptability in this situation:
Year 1 had income from operations of $100,000 and Net Cash Flow of $180,000
Year 2 " " " " " 40,000 " " " " " 120,000
Year 3 20,000 100,000
Year 4 10,000 90,000
Year 5 10,000 90,000
What is the net present value for this investment?

Explanation / Answer

Year Income From Operations Net Cash Flow present value
1 $100,000 180,000 163620
2 40,000 120,000 99120
3 20,000 100,000 75100
4 10,000 90,000 61470
5 10,000 90,000 55890
Total Cash inflow present value 455,200
Initial cash outflow 430,000
Net present value 25,200
Since, there is positive net present value, the proposal is recomended for acceptance.

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