Reed is interested in purchasing a hydrographics machine for $10,000. The machine would be used for three years and generate $4,000 per year of cash flow. After three years, the machine could be sold for $3,000. What is the net present value of the machine at 12%?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows and the salvage value back to the present value using the given discount rate of 12%, and then subtracting the initial investment. The NPV formula is: NPV = (Cash Flow / (1 + r)^t) + ... + (Salvage Value / (1 + r)^n) - Initial Investment. Calculating this gives an NPV of $1,742.67.

Reed Is Interested in Purchasing a Hydrographics Machine for $10,000