The Whitton Company uses a discount rate of 16%.The company has an opportunity to buy a machine now for $18,000 that will yield cash inflows of $10,000 per year for each of the next three years.The machine would have no salvage value.The net present value of this machine to the nearest whole dollar is:

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash inflows at the company's discount rate and subtracting the initial investment. The NPV formula is: NPV = (Cash inflow / (1 + r)^t) - Initial investment. For this problem: NPV = ($10,000 / 1.16^1) + ($10,000 / 1.16^2) + ($10,000 / 1.16^3) - $18,000 = $4,460.

The Whitton Company Uses a Discount Rate of 16