# Paige Company is contemplating the acquisition of a machine that costs $50,000 and promises to...

## Question:

Paige Company is contemplating the acquisition of a machine that costs $50,000 and promises to reduce annual cash operating costs by $11,000 over the next six years. Which of the following is a proper way to evaluate this investment if the company desires a 12% return on all investments?

## Net Present Value:

Net present value is a commonly used method for assessing profitability of a project or investment. It is calculated as the present value of cash inflows minus the present value of cash outflows. A project is profitable only if it has a positive net present value.

## Answer and Explanation: 1

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View this answerWe can use the net present value approach to evaluate this investment. To compute the net present value, we first compute the present value of cash...

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Chapter 14 / Lesson 3The net present value (NPV) method considered future cash flows to evaluate the value of capital projects—those that increase or decrease an enterprise's value. Learn how this method is calculated and guides budget decisions.

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