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.What is the net present value of this machine,rounded to the nearest whole dollar,do not round your intermediate calculations? (Ignore income taxes in this problem.)

Question

Quizplus · Accepted Answer

To calculate net present value, we need to discount the cash inflows by the discount rate. Using the formula:

NPV = -(initial investment) + (cash inflow / (1+discount rate)^period)

NPV = -18000 + (10000 / (1+0.16)^1) + (10000 / (1+0.16)^2) + (10000 / (1+0.16)^3)

NPV = -18000 + 8695.47 + 7504.06 + 6457.44

NPV = $4,456.97

Therefore, the net present value of the machine is $4,459. The best choice is B.

The Whitton Company Uses a Discount Rate of 16