The following present value factors are provided for use in this problem. $$\begin{array} { c c c }
\text { Periods } & \text { Presert Value } & \text { Presert Value of arl } \
& \text { of } \$ 1 \text { at } 8 \% & \text { Annuity of } \$ 1 \text { at } 8 \% \
1 & 0.9259 & 0.9259 \
2 & 0.8573 & 1.7833 \
3 & 0.7938 & 2.5771\
4&0.07350&3.3121
\end{array}$$ Xavier Co. wants to purchase a machine for $37,000 with a four year life and a $1,000 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,000 in each of the four years. What is the machine's net present value?

Question

The following present value factors are provided for use in this problem. $$\begin{array} { c c c } 
\text { Periods } & \text { Presert Value } & \text { Presert Value of arl } \
 & \text { of } \$ 1 \text { at } 8 \% & \text { Annuity of } \$ 1 \text { at } 8 \% \
1 & 0.9259 & 0.9259 \
2 & 0.8573 & 1.7833 \
3 & 0.7938 & 2.5771\
4&0.07350&3.3121
\end{array}$$ Xavier Co. wants to purchase a machine for $37,000 with a four year life and a $1,000 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,000 in each of the four years. What is the machine's net present value?

Quizplus · Accepted Answer

The net present value (NPV) is calculated by finding the present value of the cash inflows and subtracting the initial investment. The present value of the annuity of $12,000 for 4 years at 8% is $12,000 * 3.3121 = $39,745.2. The present value of the $1,000 salvage value at the end of 4 years is $1,000 * 0.7350 = $735. The total present value of inflows is $39,745.2 + $735 = $40,480.2. Subtracting the initial investment of $37,000 gives an NPV of $3,480.

The Following Present Value Factors Are Provided for Use in This