The management of Retz Corporation is considering the purchase of a new machine costing $500,000.The company's desired rate of return is 10%.The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively.In addition to the foregoing information, use the following data in determining the acceptability in this situation: $$\begin{array} { c c c }
\text { Year } & \text { Income from Operations } & \text { Net Cash Flow } \
\hline 1 & \$ 100,000 & \$ 200,000 \
2 & 80,000 & 170,000 \
3 & 50,000 & 130,000 \
4 & 10,000 & 80,000 \
5 & 10,000 & 80,000
\end{array}$$ ? The net present value for this investment is:

Question

The management of Retz Corporation is considering the purchase of a new machine costing $500,000.The company's desired rate of return is 10%.The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively.In addition to the foregoing information, use the following data in determining the acceptability in this situation: $$\begin{array} { c c c } 
\text { Year } & \text { Income from Operations } & \text { Net Cash Flow } \
\hline 1 & \$ 100,000 & \$ 200,000 \
2 & 80,000 & 170,000 \
3 & 50,000 & 130,000 \
4 & 10,000 & 80,000 \
5 & 10,000 & 80,000
\end{array}$$ ? The net present value for this investment is:

Quizplus · Accepted Answer

To calculate the net present value (NPV), we multiply each year's net cash flow by the present value factor for that year and sum these products. Then, we subtract the initial investment of $500,000.Year 1: $200,000 * 0.909 = $181,800Year 2: $170,000 * 0.826 = $140,420Year 3: $130,000 * 0.751 = $97,630Year 4: $80,000 * 0.683 = $54,640Year 5: $80,000 * 0.621 = $49,680Total present value of cash flows = $181,800 + $140,420 + $97,630 + $54,640 + $49,680 = $524,170NPV = Total present value of cash flows - Initial investment = $524,170 - $500,000 = $24,170Therefore, the net present value for this investment is positive $24,170.

The Management of Retz Corporation Is Considering the Purchase of a New