Question

Xavier Co. wants to purchase a machine for $36,100 with a four year life and a $1,100 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $11,100 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)?

Answer 1

Answer:

$1,473

Explanation:

The net present value is the present value of after tax cash flows substracted from the initial investment.

The net present value can be calculated using a financial calculator:

Cash flow for year zero = $-36,100

Cash flow for year one to three = $11,100

Cash flow for year four = $11,100 + $1,100 = $12,200

I = 8%

NPV = $1473