A manufacturer is considering the purchase of a new processing machine.The initial cost of the machine will be $300 000.The expected increase in net cash inflow as a result of the purchase is $75 000 for the first year and $160 000 for each of the next two years.The machine will have a salvage value of zero.At a discount rate of 5%,the net present value of the machine is:

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash inflows to their present value and subtracting the initial investment. Using a discount rate of 5%, the calculation is as follows:Year 1: $75,000 / (1 + 0.05)^1 = $71,429Year 2: $160,000 / (1 + 0.05)^2 = $145,351Year 3: $160,000 / (1 + 0.05)^3 = $138,429Adding these values gives the total present value of the cash inflows: $71,429 + $145,351 + $138,429 = $355,209Subtracting the initial investment of $300,000 from this total gives the NPV: $355,209 - $300,000 = $55,209The closest option to this calculated NPV is $54,758 (Option C), indicating a possible rounding difference in the calculation.

A Manufacturer Is Considering the Purchase of a New Processing