Memphis Co.is considering purchasing a machine for $83,200 that will increase cash inflows 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,at 10 percent,for the three years are 0.909,0.826,and 0.751,respectively.
-Using the above information for Memphis,the machine's net present value is

Question

Memphis Co.is considering purchasing a machine for $83,200 that will increase cash inflows 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,at 10 percent,for the three years are 0.909,0.826,and 0.751,respectively. 
-Using the above information for Memphis,the machine's net present value is

Quizplus · Accepted Answer

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