The following present value factors are provided for use in this problem. Period
ID: 2578671 • 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 $37,000 with a four year life and a $1,000 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,000 in each of the four years. What is the machine's net present value (round to the nearest whole dollar)? $3,480. $2,745. $40,480. ($3,480). ($2,745).
Explanation / Answer
Given that
Cost of Machine
$ 37,000
Useful life of machine
4 years
Annual net Cash flows
$ 12,000
Salvage value
$ 1,000
Calculation of Net Present Value
Year
Particulars
Cash Flow
Present value factor
Present value
0
Intial Cash outlay (Cost)
$ (37,000)
1
$ (37,000)
1 to 3
Annual cash Inflow
$ 12,000
3.3121
$ 39,745
4
Terminal Cah Inflow (Salvage value)
$ 1,000
0.735
$ 735
Net Present Value
$ 3,480
Given that
Cost of Machine
$ 37,000
Useful life of machine
4 years
Annual net Cash flows
$ 12,000
Salvage value
$ 1,000
Calculation of Net Present Value
Year
Particulars
Cash Flow
Present value factor
Present value
0
Intial Cash outlay (Cost)
$ (37,000)
1
$ (37,000)
1 to 3
Annual cash Inflow
$ 12,000
3.3121
$ 39,745
4
Terminal Cah Inflow (Salvage value)
$ 1,000
0.735
$ 735
Net Present Value
$ 3,480
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