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Lofting Snodbury is considering investing in a new boring machine. It costs $416,000 and is expected...

Lofting Snodbury is considering investing in a new boring machine. It costs $416,000 and is expected to produce the following cash flows:

year 1 2 3 4 5 6 7 8 9 10
Cash flow 67,000 74,000 109,000 114,000 102,000 109,000 109,000 114,000 85,000 67,000

If the cost of capital is 13%, what is the machine's NPV? (Do not round intermediate calculations. Enter your answer in whole dollars rounded to 2 decimal places.)

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Answer #1

Solution:

NPV = Present value of cash inflows - Present value of cash outflows

Present value of cash outflows= $4,16,000*1= $4,16,000

Present value of cash inflows= 67000/1.13 + 74000/1.13^2 + 109000/1.13^3 + 1,14,000/1.13^4 + 1,02,000/1.13^5 + 1,09,000/1.13^6 + 1,09,000/1.13^7 + 1,14,000/1.13^8 + 85000/1.13^9 + 67000/1.13^10

Present value of cash inflows = $59,292.0354 + $57,952.8546 + $75,542.4677 +$69,918.3350 + $55,361.5135 + $52,354.7195 + $ 46,331.6102 + $42,882.2242 + $28,295.2108 + $19,737.4193 = $5,07,668.3902

NPV = $5,07,668.3902 + $4,16,000= $91,668.3902 rounded to $91,668.39

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