Discount Dollar Store is considering the purchase of a new machine costing $220,000.This machine is estimated to generate an additional $88,000 per year in revenues.The machine will be depreciated using the straight-line method over its 4-year life.There is no expected salvage value at the end of its life.Expected annual net cash flows are $67,240 and expected annual net income from the new machine total $12,240.The required rate of return is 8% and the income tax rate is 28%.How much is the net present value of this project?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the expected annual net cash flows at the required rate of return and subtracting the initial investment. The NPV calculation involves finding the present value of each year's cash flow and summing them up, then subtracting the initial cost of the machine. The correct NPV is $2,706.

Discount Dollar Store Is Considering the Purchase of a New