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You are the director of a factory and you want to encourage the CEO to purchase...

You are the director of a factory and you want to encourage the CEO to purchase a new
machine for an additional production line. To help build your case you have come up with
the following numbers:
New machine will cost $750,000.
New Machine has a life of 8 years.
New machine will generate cash flows of $50,000 in year 1.
New machine will generate cash flows of $70,000 in year 2.
New machine will generate cash flows of $80,000 in year 3.
New machine will generate cash flows of $100,000 in year 4-8.
Company discount rate is 10%.
You think you should conduct an NPV analysis of these numbers before you speak with
the CEO. Will you recommend the CEO purchase the new machine?

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Answer #1
Year Cash Flow Discountig Factor
[1/(1.1^period)]		 PV of cash flows
(cash flow*discounting factor)
0 -750000 1 -750000
1 50000 0.909090909 45454.54545
2 70000 0.826446281 57851.23967
3 80000 0.751314801 60105.18407
4 100000 0.683013455 68301.34554
5 100000 0.620921323 62092.13231
6 100000 0.56447393 56447.39301
7 100000 0.513158118 51315.81182
8 100000 0.46650738 46650.73802
NPV=
Sum of PVs		 -301781.6101

As NPV is Negative, It is NOT recommended to purchase the machine

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