Sam is considering the purchase of a vending machine to sell sodas. The cost of the vending machine is $3,400. Sam estimates that the vending machine will last for five years and will provide net income of $800 each year for its lifetime. If Sam pays $3,400 for the vending machine today, the net present value at 5% is $____.

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the net income of $800 per year for 5 years at a 5% discount rate and subtracting the initial cost of $3,400. The NPV is $63.58.

Sam Is Considering the Purchase of a Vending Machine to Sell