TSR Ltd is considering investing in a new printing machine.The machine costs $150,000 and is projected to generate $25,200 cash inflows at the end of each year for a period of 10 years.TSR estimates the appropriate discount rate to be 7% p.a.What is the NPV of the new printing machine?
A)$26,994.25
B)$4,843.09
C)- $27,315.85
D)- $14,189.91

Question

Quizplus · Accepted Answer

The Net Present Value (NPV) is calculated using the formula: NPV = $\sum \frac{C_t}{(1+r)^t} - C_0$, where $C_t$ is the cash inflow at time t, $r$ is the discount rate, and $C_0$ is the initial investment. Here, $C_t = $25,200$, $r = 7\%$, and $C_0 = $150,000$. The NPV calculation over 10 years gives $26,994.25, indicating the investment is expected to generate a positive return above the cost of capital.

TSR Ltd Is Considering Investing in a New Printing Machine