Leo Inc. is buying new equipment that has the following cash flows: Year 0 1 2...

Question

Question

Leo Inc. is buying new equipment that has the following cash flows:

Year	0	1	2	3
Cash Flow	-$600	$350	$220	$110

What is the NPV if the interest rate is $6%?

business finance

Answer 1

Answer #1

The correct answer is $18.35

Net Present Value = Total of Present Value of Cash inflows - Initial Investment.

Years Calculation of Net Present Value Cash flows Discounting ($) Factor @ 6% Present Value($) 350 0.9434 330.1887 220 0.8900

Cash flow at Year 0 is the initial investement for the equipment. Therefore it is shown by a negative sign as it is an outflow.

Note - How did e calculate the discounting factors @6%.

Year 1 = 1/1.06

= 0.9434

Year 2 = 0.9434 /1.06

= 0.8900

Year 3 = 0.8900 /1.06

= 0.8396

Answer 2

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