Jackson Company invests in a new piece of equipment costing $40,000.The equipment is expected to yield the following amounts per year for the equipment's four-year useful life: What is the net present value of this investment in equipment?

Question

Jackson Company invests in a new piece of equipment costing $40,000.The equipment is expected to yield the following amounts per year for the equipment's four-year useful life:  What is the net present value of this investment in equipment?

Quizplus · Accepted Answer

To find the net present value of this investment, we need to discount each year's cash flow to its present value using a discount rate of 10%, and then add up all the present values. Doing so results in a net present value of $41,592. Option A is incorrect because it is more than the net present value. Option C is incorrect because it is negative. Option D is incorrect because it is higher than the net present value. Therefore, the best choice is B.

Jackson Company Invests in a New Piece of Equipment Costing