A company is considering the purchase of new equipment for $105,000. The project
ID: 2487792 • Letter: A
Question
A company is considering the purchase of new equipment for $105,000. The projected annual net cash flows are $41,000. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 12% return on investment. The present value of an annuity of 1 for various periods follows: Periods Present value of an annuity of 1 at 12% 1 0.8929 2 1.6901 3 2.4018 What is the net present value of this machine assuming all cash flows occur at year-end?
$35,000
$5,000
$(6,526)
$40,000
$96,072
Explanation / Answer
Year Cash Flow P.V Factor Discounted Cash Flow 0 -105000 1 -105000 1-3 41000 2.4018 98474 NPV -6526
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