The following present value factors are provided for use in this problem. Cliff

Question

The following present value factors are provided for use in this problem.

Cliff Co. wants to purchase a machine for $48,000, but needs to earn a(n) 8% return. The expected year-end net cash flows are $17,000 in each of the first three years, and $21,000 in the fourth year. What is the machine's net present value? (Round intermediate answer to the nearest whole dollar.)

Periods Present value
of $1 at 8% Present value of an
Annuity of $1 at 8% 1 0.9259 0.9259 2 0.8573 1.7833 3 0.7938 2.5771 4 0.7350 3.3121

Explanation / Answer

NPV Value of the asset= Discounted Value of Future Cash Flows - Initial Cash Investment

=(17000/1.08 + 17000/(1.08)^2+ 17000/(1.08)^3+21000/(1.08)^4) - 48,000

=(17000 {1/1.08+1/(1.08)^2+1/(1.08)^3}+21000/(1.08)^4) - 48,000

=(17000*2.5771+21000*0.7350) - 48,000

=59,246 - 48,000 = 11,246

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