The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability in this situation: The net present value for this investment is:

Question

The management of Idaho Corporation is considering the purchase of a new machine costing $430,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability in this situation:  The net present value for this investment is:

Quizplus · Accepted Answer

To find the net present value, we need to calculate the present value of expected cash inflows and subtract the initial investment. 
Using the present value factors given:

Year 1: $200,000 x 0.909 = $181,800 
Year 2: $130,000 x 0.826 = $107,380 
Year 3: $140,000 x 0.751 = $105,140 
Year 4: $150,000 x 0.683 = $102,450 
Year 5: $160,000 x 0.621 = $99,360

Total PV: $596,130 
Subtracting the initial investment of $430,000 gives a net present value of $166,130. Since the net present value is positive, the investment is acceptable.

Therefore, the answer is B.

The Management of Idaho Corporation Is Considering the Purchase of a New