The Gypsy Barrell Company is considering the purchase of a new machine costing $500,000. This...
Question:
The Gypsy Barrell Company is considering the purchase of a new machine costing $500,000. This machine is estimated to cost $15,000 per year in operating expenses but it will allow the company to earn an additional $120,000 per year in revenues. The machine will be depreciated using the straight-line method over its 10-year life. There is no expected salvage value at the end of its life. If the required rate of return is 15% what is the net present value of this project?
A. $92,174
B. $(223,966)
C. $102,256
D. $26,974
Capital Budgeting:
The dynamics of each capital budgeting technique's workings are critical to calculate the final result and understand its implications. For example, the relevant data for accounting rate of return is net profit and average investment cost.
Answer and Explanation: 1
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View this answerAnswer: D. $26,974
Calculations:
- The investment cost in the machine is $500,000
- The project life is ten years
- Net Cash inflow per year =...
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How to Calculate Net Present Value: Definition, Formula & Analysis
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Chapter 5 / Lesson 20
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Learn about what net present value is, how it is calculated both for a lump sum and for a stream of income over multiple years. View some examples on NPV.
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