Question

47.Your company wants to purchase a 3D printer at a cost of $15,000. It estimates it can generate cash inflow in the year following purchase of $12,000. In the next a cash outflow of $4,000 will occur because the printer will require expensive maintenance and a software update. In the printer’s final year of its useful life it will generate cash flow of a $10,000. The machine will then be scrapped. Is the purchase financially justifiable if the appropriate discount rate is 8%? (Assume all cash flows occur at the end of the year)Select one:a. Yes, it generates a positive NPV of $620.b. No, it generates a negative NPV of $850.c. No, it generates a negative NPV of $1,244.d. None of the above.

Answer 1

Calculation of NPV of 3D printer:

Particulars	Cash Flow (1)	Discount factor @ 8% (2)	Discounted cash flows (3) (1*2)
Purchase of printer (Cash outflow) (Y0) (Initial investment)	-15,000	1	-15,000
Cash inflow in First year (Y1)	12,000	1/1.08= 0.926	11,110
Cash outflow in second year (Y2)	-4000	1/1.08*1/1.08=0.857	-3429
Cash inflow in 3rd year (Y3)	10,000	1/1.08*1/1.08*1/1.08=0.794	7939
		Total	620

NPV = Discounted Cash inflows - Discounted Cash outflows- Initial investment

= 11,110+7939-3429-15000

=19,049-18429

= 620

NPV = 620

Since, NPV is positive we can accept the purchase

Answer: a

Yes, it generates a positive NPV of $620