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
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%.
See full answer below.
Become a member and unlock all Study Answers
Start today. Try it nowCreate an account
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
fromChapter 5 / Lesson 20
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.