The following present value factors are provided for use in this problem. Period
ID: 2578668 • Letter: T
Question
The following present value factors are provided for use in this problem. 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 Xavier Co. wants to purchase a machine for $36,600 with a four year life and a $1,200 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $11,600 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)? $2,702. $1,820. $39,302. $(2,702). $(1,820).
Explanation / Answer
Answer is $2,702
Cost of Machine = $36,600
Annual Cash flow = $11,600
Salvage Value = $1,200
NPV = -$36,600 + $11,600 * Present Value of Annuity of $1 (8%, 4) + $1,200 * Present Value of $1 (8%, 4)
NPV = -$36,600 + $11,600 * 3.3121 + $1,200 * 0.7350
NPV = $2,702
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