Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The compan
ID: 2627593 • Letter: M
Question
Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $817,822, $863,275, $937,250, $1,018,110, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment?
Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?
Year Project
0 ($11,368,000)
1 $ 2,157,590
2 $ 3,787,552
3 $ 3,200,650
4 $ 4,115,899
5 $ 4,556,424
Explanation / Answer
1. NPV = -4133250 + 816822/1.15+ 863275/1.15^2 + 937250/1.15^3 + 1017110/1.15^4 + 1212960/1.15^5 + 1225000/1.15^6 = -$ 439760
2.NPV = -11368000 + 2157590/1.138 + 3787552/1.138^2 + 3200650/1.138^3 + 4115899/1.138^4 +4556424/1.138^5 = $ 465809.3
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