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Samson Industries is deciding whether to automate one phase of its production process. The manufacturing equipment...

Samson
Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a​ six-year life and will cost
$920,000.00
Projected net cash inflows are as​ follows:
$       260,000 year 1
$       254,000 year 2
$       225,000 year 3
$       214,000 year 4
$       202,000 year 5
$       177,000 year 6

what is the net present value? Should we do this project?

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Answer #1
Year Inflow Discount rate 16% Present Value
Year 1 260000 0.862 224120
Year 2 254000 0.743 188722
Year 3 225000 0.641 144225
Year 4 214000 0.552 118128
Year 5 202000 0.476 96152
Year 6 177000 0.41 72570
843917
Total PV of cash inflow 843917
Total PV of cash outflow 920000
Net PV -76083
Since, NPV is loss, therefore, project should not be accepted
( Note, I have taken disc rate as 16%. In the given question, disc rate is silent)
Therefore, if disc rate is not 16% then change 16 to that per cent.
How to calculate disc rate
For year 1 Disc rate = 1/(1.16)
For year 2 Disc rate = 1/(1.16)^2
I hope this satisfies the answer.
In case of doubt, please comment. Also, it would be great in case you give thumbs up.
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