The Pantry Vending Machine Company is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision: What is the net present value for the snack machines?
Present Value of $1
Present Value of Annuity of $1

Question

The Pantry Vending Machine Company is looking to expand its business by adding a new line of vending machines. The management team is considering expanding into either soda machines or snack machines. Following is the relevant financial data relating to the decision:  What is the net present value for the snack machines?
Present Value of $1
 Present Value of Annuity of $1

Quizplus · Accepted Answer

To find the net present value, we need to calculate the present value of the cash inflows and outflows for each option, and then subtract the initial investment. For the snack machines, the initial investment is $400,000. The cash inflows for each year for 5 years are $90,000, and the present value of an annuity of $1 for 5 years at a discount rate of 12% is 3.605. Therefore, the present value of the cash inflows is $324,450 (90,000 x 3.605). The net present value is calculated as follows: NPV = PV of cash inflows - initial investment = $324,450 - $400,000 = -$75,550. This means that the snack machines are not a financially viable option as they have a negative NPV. Therefore, the best choice would be to expand into soda machines.

The Pantry Vending Machine Company Is Looking to Expand Its