The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for Years 1 through 5 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 of this investment:? $\begin{array}{rrr}\text { Year } & \text { Income from } & \text { Net Cash } \
& \text { Operations } & \text { Flow } \
\hline 1 & \$ 100,000 & \$ 180,000 \
2 & 40,000 & 120,000 \
3 & 20,000 & 100,000 \
4 & 10,000 & 90,000 \
5 & 10,000 & 90,000
\end{array}$ The net present value for this investment is

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV) of the investment, we multiply the net cash flows for each year by the present value factor for that year and then sum these present values. Finally, we subtract the initial investment cost from this sum.Year 1: $180,000 * 0.909 = $163,620Year 2: $120,000 * 0.826 = $99,120Year 3: $100,000 * 0.751 = $75,100Year 4: $90,000 * 0.683 = $61,470Year 5: $90,000 * 0.621 = $55,890Sum of present values = $163,620 + $99,120 + $75,100 + $61,470 + $55,890 = $455,200NPV = Sum of present values - Initial investmentNPV = $455,200 - $430,000 = $25,200

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