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

Question

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

Xavier Co. wants to purchase a machine for $37,500, with a four year life and a $1,200 salvage value.Xavier requires an 8% return on investmnet. The expected year-end net cash flows are $20,000 in each of the first three years, and $12,500 in the fourth year. What is the machine's net present value

Periods Present value
of 1 at 10% Present value of an annuity of 1 at 10% 1 0.9259 0.9259 2 0.8573 1.7833 3 0.7938 2.5771 4 0.7350 3.3121

Explanation / Answer

machine's net present value

Net present value = Present value of cash inflow-Present value of cash outflow

= (20000*2.5771+12500*.735+1200*.735)-(37500*1)

Net present value = 24111.50 or 24112

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