# 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%.

Year | Facto... |

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Chapter 5 / Lesson 20Learn 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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