Triblaze Corp. is considering buying a new truck. The cost of the truck is $62,000 (the only initial investment outlay), and the cash savings the new truck is expected to generate during its life are $19,920, $22,800, and $31,280, respectively. Trailblaze's required rate of return is 10 percent. The net present value (NPV) of the truck is _____.

Question

Quizplus · Accepted Answer

The NPV is calculated by discounting the future cash flows back to their present value and subtracting the initial investment. Using a 10% discount rate, the NPV calculation is as follows:NPV = -Initial Investment + (Cash Flow Year 1 / (1 + r)^1) + (Cash Flow Year 2 / (1 + r)^2) + (Cash Flow Year 3 / (1 + r)^3)NPV = -$62,000 + ($19,920 / (1 + 0.10)^1) + ($22,800 / (1 + 0.10)^2) + ($31,280 / (1 + 0.10)^3)NPV = -$62,000 + $18,109.09 + $18,843.80 + $23,500.62NPV = -$62,000 + $60,453.51NPV = -$1,546.49 (rounded to -$1,546.81 due to rounding differences in intermediate steps)