Question

A machine lasts four years with the following net cash outflows: $15,000 cost and a $7,350...

A machine lasts four years with the following net cash outflows: $15,000 cost and a $7,350 year-end operating cost. At the end of four years, the machine is sold for $3,200 thus the cash flow at year 4 is only $4,150. The cost of capital is 8 percent. What is the present value of the costs of operating this machine? You may assume the tax rate is zero.

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Answer #1
Project
Discount rate 0.08
Year 0 1 2 3 4
Cash flow stream 15000 7350 7350 7350 4150
Discounting factor 1 1.08 1.1664 1.259712 1.360489
Discounted cash flows project 15000 6805.556 6301.44 5834.667 3050.3739
NPV = Sum of discounted cash flows
NPV Project = 36992.04
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
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