Question

X Corporation is considering buying a new $9,000 machine. The projected annual after-tax net income from the machine is $500, after deducting $3,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. X considers 12% return on an investment satisfactory. Periods 12% Present Value of $1 12% Present value of an annuity of $1 1 0.8929 0.8929 2 0.7972 1.6901 3 0.7117 2.4018 What is the net present value (NPV) of the machine investment? A. $ (7,799) B. $ (594) C. 1,201 D. $ 8,406 E. $ 9,000

Answer 1

Answer:

b

Explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.  

NPV can be calculated using a financial calculator  

Cash flow = net income + depreciation

$500 + $3000 = $3500

Cash flow in year 0 = -9000

Cash flow in year 1 to 3 = 3500

I = 12%

npv = -594

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute