Vextra Corporation is considering the purchase of new equipment costing $37,000.

Question

Vextra Corporation is considering the purchase of new equipment costing $37,000. The projected annual cash inflow is $11,400, to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Vextra requires a 12% return on its investments. The present value of an annuity of $1 for different periods follows:

Periods 12 Percent

1 0.8929

2 1.6901

3 2.4018

4 3.0373

What is the net present value of the machine (rounded to the nearest whole dollar)?

A. $(34,625).

B. $(3,500).

C. $37,000.

D. $(2,375).

Explanation / Answer

NPV Annual cash Inflows 11400 PVIFA (12%,4) 3.0373 Discounted cash Inflow 34625 Less: initial Investment -37000 NPV -2375 Ans D

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