Question

The Bramble Company is planning to purchase $487,000 of equipment with an estimated 7-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment: Year Projected Cash Flows 1 $207,000 2 132,000 3 109,000 4 51,700 5 61,200 6 44,400 7 46,300 Total $651,600 Click here to view the factor table. Calculate the net present value of the proposed equipment purchase. Bramble uses a 11% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

what is the Net present value

Answer 1

Ans:Net Present Value= $2,734

NPV = -487000 + 207,000/(1+.11)^1 + 132,000/(1+.11)^2 + 109,000/(1+.11)^3 + 51,700/(1+.11)^4 + 61,200/(1+.11)^5 + 44,400/(1+.11)^6 + 46,300/(1+.11)^7 =$ 2734

Workings:

Values	Discounting Factor @11%	Net Present Value of Cash Flows
$ -487,000.00	1	$ -487,000.00
$ 207,000.00	0.9009	$ 186,486.30
$ 132,000.00	0.8116	$ 107,131.20
$ 109,000.00	0.7312	$ 79,700.80
$ 51,700.00	0.6587	$ 34,054.79
$ 61,200.00	0.5935	$ 36,322.20
$ 44,400.00	0.5346	$ 23,736.24
$ 46,300.00	0.4817	$ 22,302.71
1. Net Present Value		$ 2,734

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