A machine costs $1,000,has a three-year life,and has an estimated salvage value of $100.It will generate after-tax annual cash flows (ACF)of $600 a year,starting next year.If your required rate of return for the project is 10%,what is the NPV of this investment? (Round your answer to the nearest $10. )
A)$490
B)$570
C)$900
D)-$150

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount the annual cash flows back to present value and subtract the initial cost of the machine. Using a financial calculator or Excel, we can find that the present value of the annual cash flows is $1598.47.

NPV = PV of cash flows - initial cost
NPV = $1598.47 - $1000
NPV = $598.47

Since the NPV is positive, this investment is expected to generate more than the required rate of return of 10%. Therefore, we should accept the investment. The closest rounded answer is $570, which corresponds to choice B.

A Machine Costs $1,000,has a Three-Year Life,and Has an Estimated