Data for Van Guard Designs are:
Investment in new equipment $90 000
Net annual cash inflows 12 500
Salvage value of the new equipment 8 000
Life of the new equipment 10 years
Calculate the net present value of the machine assuming the cost of capital is 6% (ignore taxes and round answer to nearest whole dollar).

Question

Quizplus · Accepted Answer

The net present value (NPV) of the machine can be calculated using the formula for NPV, which involves discounting the net annual cash inflows and the salvage value back to their present values at the given cost of capital, and then subtracting the initial investment. Given the data:- Initial investment = $90,000- Net annual cash inflows = $12,500 for 10 years- Salvage value = $8,000 at the end of 10 years- Cost of capital = 6%The present value of the annual cash inflows can be calculated using the Present Value of an Annuity formula, and the present value of the salvage value can be calculated using the Present Value formula. The NPV is the sum of these present values minus the initial investment.Calculating the present value of the cash inflows and the salvage value, and then subtracting the initial investment gives an NPV of approximately $6,468, which is option D.

Data for Van Guard Designs Are