(Ignore income taxes in this problem.) Stutz Company purchased a machine with an

Question

(Ignore income taxes in this problem.) Stutz Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $11,200 each year over the next seven years. If the machine has no salvage value at the end of seven years, if Stutz's discount rate is 12%, and if the net present value of this investment is $23,000, then the purchase price of the machine was: (Round your 'PV factors' to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use Exhibitllb-1, Exhibitl1b-2) O$21,983 O $51,117 O $23,000 O $28.17

Explanation / Answer

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=$11200[1-(1.12)^-7]/0.12

=$11200*4.564

=$51117(Approx)

NPV=Present value of inflows-Present value of outflows

23000=51117-present value of outflows

Hence purchase price=(51117-23000)

=$28117(Approx).

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