A company is considering the purchase of new equipment for
$72,000. The projected annual net cash flows are $28,900. The
machine has a useful life of 3 years and no salvage value.
Management of the company requires a 9% return on investment. The
present value of an annuity of $1 for various periods
follows:
| Period | Present value of an annuity of $1 at 9% |
| 1 | 0.9174 |
| 2 | 1.7591 |
| 3 | 2.5313 |
What is the net present value of this machine assuming all cash
flows occur at year-end?
$24,000
$3,900
$1,155
$27,900
$70,623
Present value of inflows=$28900*Present value of annuity factor(9%,3)
=$28900*2.5313
=$73154.57
NPV=Present value of inflows-Present value of outflows
=73154.57-72,000
=$1155(Approx).
A company is considering the purchase of new equipment for $72,000. The projected annual net cash...