Parkways Inc. is considering the purchase of a new machine. The machine will cost $60,000 to...
Question:
Parkways Inc. is considering the purchase of a new machine. The machine will cost $60,000 to purchase and will generate $15,000 of cash revenues per year for the next 8 years. The machine will cost $1,000 per year to operate & maintain. At the end of its useful life, it has an estimated salvage value of $5,000. Parkways require a minimum rate of return of 14% for this class of asset.
Determine the Net Present Value of this investment proposal.
a. $6,701
b. $57,000
c. $1,166
d. $0
Capital Projects:
When a company is considering a new capital project, it must include all the cash flows associated with it in its analysis, and if the project spans several years, it must also consider the time value of money.
Answer and Explanation: 1
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The correct option is a.
We use the present value factors for a single sum and for an ordinary annuity at 14% in our calculation:
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Discounted Cash Flow, Net Present Value & Time Value of Money
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Learn about the time value of money, net present value, and discounted cash flow when it comes to building wealth. Money in hand today has more value than promised at a future date is known as the time value of money.
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