The management of London Corporation is considering the purchase of a new machine costing $750,000.The company's desired rate of return is 6%.The present value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890, 0.840, 0.792, and 0.747, respectively.In addition to this information, use the following data in determining the acceptability in this situation: $$\begin{array} { c c c }
\text { Year } & \text { Income from Operations } & \text { Net Cash Flow } \
\hline 1 & \$ 37,500 & \$ 187,500 \
2 & 37,500 & 187,500 \
3 & 37,500 & 187,500 \
4 & 37,500 & 187,500 \
5 & 37,500 & 187,500
\end{array}$$ ? The net present value for this investment is:

Question

The management of London Corporation is considering the purchase of a new machine costing $750,000.The company's desired rate of return is 6%.The present value factors for $1 at compound interest of 6% for 1 through 5 years are 0.943, 0.890, 0.840, 0.792, and 0.747, respectively.In addition to this information, use the following data in determining the acceptability in this situation: $$\begin{array} { c c c } 
\text { Year } & \text { Income from Operations } & \text { Net Cash Flow } \
\hline 1 & \$ 37,500 & \$ 187,500 \
2 & 37,500 & 187,500 \
3 & 37,500 & 187,500 \
4 & 37,500 & 187,500 \
5 & 37,500 & 187,500
\end{array}$$ ? The net present value for this investment is:

Quizplus · Accepted Answer

The net present value is positive $39,750. This is because the present value of the cash flows ($1,037,250) is greater than the cost of the machine ($750,000).

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