Question

G Wagon would like to purchase a printing machine for $315,000. The machine is expected to...

G Wagon would like to purchase a printing machine for $315,000. The machine is expected to have a life of three years and a salvage value of $30,000. Annual maintenance costs will total $16,000. Annual cash savings are predicted to be $125,000. G Wagon required rate of return is 12%.  

What is the net cash inflow or outflow resulting from this investment opportunity?

Using Excel, compute the net present value (NPV)

What is the NPV that you calculated?

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Homework Answers

Answer #1

Solution:

Annual cash inflows = Annual cash savings - Annual maintenance cost = $125,000 - $16,000 = $109,000

Computation of NPV - G Wagon
Particulars Period Amount PV factor at 12% Present Value
Cash outflows:
Initial investment 0 $315,000.00 1 $315,000
Present Value of Cash outflows (A) $315,000
Cash Inflows
Annual cash inflows 1-3 $109,000.00 2.4018 $261,800
Salvage value 3 $30,000.00 0.7118 $21,353
Present Value of Cash Inflows (B) $283,153
Net Present Value (NPV) (B-A) -$31,847
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