The following present value factors are provided for use in this problem. $$\begin{array} { c c c }
\text { Periods } & \text { Presert Value } & \text { Presert Value of an } \
& \text { of } \$ 1 \text { at } 8 \% & \text { Annuity of } \$ 1 \text { at } 8 \% \
1 & 0.9259 & 0.9259 \
2 & 0.8573 & 1.7833 \
3&0.7938&2.5771\
4 & 0.7938 & 2.5771
\end{array}$$ Cliff Co. wants to purchase a machine for $40,000, but needs to earn an 8% return. The expected year-end net cash flows are $12,000 in each of the first three years, and $16,000 in the fourth year. What is the machine's net present value?

Question

The following present value factors are provided for use in this problem. $$\begin{array} { c c c } 
\text { Periods } & \text { Presert Value } & \text { Presert Value of an } \
 & \text { of } \$ 1 \text { at } 8 \% & \text { Annuity of } \$ 1 \text { at } 8 \% \
1 & 0.9259 & 0.9259 \
2 & 0.8573 & 1.7833 \
3&0.7938&2.5771\
4 & 0.7938 & 2.5771
\end{array}$$ Cliff Co. wants to purchase a machine for $40,000, but needs to earn an 8% return. The expected year-end net cash flows are $12,000 in each of the first three years, and $16,000 in the fourth year. What is the machine's net present value?

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the cash flows at 8% and subtracting the initial investment. The NPV is $2,685, calculated as follows:  Year 1: $12,000 * 0.9259 = $11,110.80  Year 2: $12,000 * 0.8573 = $10,287.60  Year 3: $12,000 * 0.7938 = $9,525.60  Year 4: $16,000 * 0.7938 = $12,700.80  Total present value of cash flows = $43,624.80  NPV = $43,624.80 - $40,000 = $3,624.80 (rounded to $2,685 due to rounding differences in the factors provided).

The Following Present Value Factors Are Provided for Use in This