Basic NPV: No Salvage Value or Taxes Carrie Rushing is considering the purchase

Question

Basic NPV: No Salvage Value or Taxes Carrie Rushing is considering the purchase of a new production machine that costs $80,000. She has been told to expect decreased annual operating expenses of $37,000 for four years. At the end of the fourth year, the machine will have no salvage value and will be scrapped. Required: What is the net present value of the machine if Carrie's cost of capital is 8 percent? Use the time value of money charts for your calculations. (Ignore income taxes.) Round your answer to nearest whole number.

Explanation / Answer

NPV = (Investment) Discounted Cash Flow of 1st year+ Discounted Cash Flow of 2nd year+ Discounted Cash Flow of 3rd year+ Discounted Cash Flow of 4th year NPV = ($80,000) + $37000* 0.92593 + $37000* 0.85734 + $37000* 0.79383 + $37000* 0.73503 NPV = ($80,000) + $34,259 + $31,722 + $29,372 + $27,196 $42,549

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