Los Gatos Shop is considering the purchase of a used wide-format printer costing $9,600. The wide-format printer would generate a net cash inflow of $4,000 per year for three years. At the end of three years, the printer would have no salvage value. The company's cost of capital is 10 percent. The company uses straight-line depreciation with no mid-year convention. What is the net present value for the press, assuming no taxes are paid?

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV) of the wide-format printer, we first need to determine the annual cash inflows and then discount them back to their present value at the company's cost of capital, which is 10 percent. Since the printer generates $4,000 per year for three years and has no salvage value, we only need to consider these cash inflows. The depreciation does not affect the cash flow directly since no taxes are considered in this scenario.The formula for the present value of an annuity (which is what the annual cash inflows represent) is PV = P * [(1 - (1 + r)^-n) / r], where P is the annual cash inflow, r is the discount rate (or the cost of capital in this case), and n is the number of periods.Using the given numbers:- P = $4,000- r = 10% or 0.10- n = 3 yearsPV of cash inflows = $4,000 * [(1 - (1 + 0.10)^-3) / 0.10] = $4,000 * [(1 - 0.7513) / 0.10] = $4,000 * 2.4869 = $9,947.60 (approximately)The initial investment is $9,600, so the NPV is the present value of the cash inflows minus the initial investment.NPV = $9,947.60 - $9,600 = $347.60 (approximately)Therefore, the closest answer is $348, making option C the correct choice.

Los Gatos Shop Is Considering the Purchase of a Used