Basic NPV: No Salvage Value or Taxes Carrie Rushing is considering the purchase

Question

Basic NPV: No Salvage Value or Taxes

Carrie Rushing is considering the purchase of a new production machine that costs $90,000. She has been told to expect decreased annual operating expenses of $35,000 for four years. At the end of the fourth year, the machine will have no salvage value and will be scrapped.

Required:

What is the net present value of the machine if Carrie's cost of capital is 8 percent? Use the time value of money charts for your calculations. (Ignore income taxes.) Round your answer to nearest whole number.

Explanation / Answer

Present value of cash inflows + $ 35,000 x PVAi=8%, n=4 = 35,000 x 3.312 = $ 115,920

Present value of cash outflows = $ 90,000

Net present value = $ ( 115,920 - 90,000) = $ 25,920

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.