Howard company could buy a machine that cost $50,000. It is estimated that it wi

Question

Howard company could buy a machine that cost $50,000. It is estimated that it will have cash flows every year for five years of $7000. The discount figures are .567 for cash received at the end of five years and 3.605 for each received every year for five years. Should they buy the machine?
Cannot tell No, the net present value is -24765 Yes, they will earn 24,765 Yes, they will earn 25,235 Howard company could buy a machine that cost $50,000. It is estimated that it will have cash flows every year for five years of $7000. The discount figures are .567 for cash received at the end of five years and 3.605 for each received every year for five years. Should they buy the machine?
Cannot tell No, the net present value is -24765 Yes, they will earn 24,765 Yes, they will earn 25,235
Cannot tell No, the net present value is -24765 Yes, they will earn 24,765 Yes, they will earn 25,235

Explanation / Answer

B.NO, the net present value is -24,765.

working:

net present value = present value of cash inflow - present value of cash outflow

=>[$7,000 * (3.605) ] - $50,000

=>$25,235 - $50,000

=>-$24,765.

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