Mid-Town Products Inc.purchased equipment costing $100 000.Annual operating cash inflows are expected to be $30 000 each year for five years.At the end of the equipment's life,the salvage value is expected to be $6000.If Mid-Town's cost of capital is 14 per cent,what is the asset's net present value? (ignore income taxes)

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash inflows and the salvage value at the cost of capital, and then subtracting the initial investment. Using the formula for NPV and a 14% discount rate, the calculation yields an NPV of approximately $6109.