Memphis Co. is going to purchase a machine for $83,200 that will increase cash flows by $40,000 in the first year, $30,000 the second year, and $25,000 the third year. The machine will have no residual value. The minimum rate of return is 10 percent. The present value factors for the three years are 0.909, 0.826, and 0.751, respectively. The machine's net present value is

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash flows and subtracting the initial investment. The NPV is: ($40,000 * 0.909) + ($30,000 * 0.826) + ($25,000 * 0.751) - $83,200 = $36,360 + $24,780 + $18,775 - $83,200 = ($3,285).