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A company is considering the purchase of new equipment for $54,000. The projected annual net cash flows are $22,300. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 10% return on investment. The present value of an annuity of $1 for various periods follows:

Periods Present value of an annuity of $1 at 9%
1 0.9174
2 1.7591
3 2.5313

Required:
What is the net present value of this machine assuming all cash flows occur at year-end?

Respuesta :

Tundexi

Answer:

$2,448

Explanation:

Present value of projected annual net cash flow = Annual net cash-flow * Present value annuity factor (3, 9%)

= $22,300 * 2.5313

= $56,447.99

= $56,448

Net present value of machine = Present value of projected annual net cash flow - Initial outflow

Net present value of machine = $56,448 - $54,000

Net present value of machine = $2,448

So, the net present value of this machine assuming all cash flows occur at year-end is $2,448.

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