Russell corporation is considering the purchase of a new machine for $76,000. Th
ID: 2479485 • Letter: R
Question
Russell corporation is considering the purchase of a new machine for $76,000. The machine would generate an annual cash flow of $25,000 per year for five years. At the end of five years, the machine has no salvage value. The company's cost of capital is 12%. The present value of annuity at 12%, n=5 is 3.605. What is the net present value for the machine?A. $14,125 B. 76,000 C.6,915 D. 7,686 Russell corporation is considering the purchase of a new machine for $76,000. The machine would generate an annual cash flow of $25,000 per year for five years. At the end of five years, the machine has no salvage value. The company's cost of capital is 12%. The present value of annuity at 12%, n=5 is 3.605. What is the net present value for the machine?
A. $14,125 B. 76,000 C.6,915 D. 7,686
A. $14,125 B. 76,000 C.6,915 D. 7,686
Explanation / Answer
Present value = 3.605 * 25000 = 90125
NPV = 90125 - 76000 = 14125
Correct option is "A"
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