The purchase of a new machine costing $20,000 provides a $10,000 cash inflow each year for the...
Question:
The purchase of a new machine costing $20,000 provides a $10,000 cash inflow each year for the next 4 years. The discount factors at a 10% rate are year one 0.91; year two 0.83; year three 0.75; year four 0.68.
What is the net present value of the investment?
Net Present Value:
The net present value technique requires accepting investments with positive net present value. It should be rejected if the investment doesn't offer a positive net present value.
Answer and Explanation: 1
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The net present value of the investment is $11,700.
The first step is to determine the present value annuity factor for 4 years at 10%.
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How to Calculate Net Present Value: Definition, Formula & Analysis
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