Fusion Inc.would like to purchase a new machine for $85,000.The machine is expected to generate a cost savings of $23,000 per year for five years.The company's cost of capital is 10 percent.Factors for a 10 percent interest rate for five years are shown below:
$$\begin{array} { l l }
\text { Future Value of } \$ 1 & 1.611 \
\text { Present Value of } \$ 1 & 0.621 \
\text { Future Value of an Annuity } & 6.105 \
\text { Present Value of an Annuity } & 3.791
\end{array}$$
Using the net present value (NPV)to evaluate this proposal,the company should:

Question

Fusion Inc.would like to purchase a new machine for $85,000.The machine is expected to generate a cost savings of $23,000 per year for five years.The company's cost of capital is 10 percent.Factors for a 10 percent interest rate for five years are shown below:
$$\begin{array} { l l } 
\text { Future Value of } \$ 1 & 1.611 \
\text { Present Value of } \$ 1 & 0.621 \
\text { Future Value of an Annuity } & 6.105 \
\text { Present Value of an Annuity } & 3.791
\end{array}$$
Using the net present value (NPV)to evaluate this proposal,the company should:

Quizplus · Accepted Answer

The NPV is calculated as follows:NPV = -Initial Investment + Present Value of Future Cash FlowsNPV = -$85,000 + $23,000 x 3.791NPV = $2,193Since the NPV is positive, the company should invest in the proposal.

Fusion Inc Using the Net Present Value (NPV)to Evaluate This Proposal,the Company