Question

ABC Service can purchase a new assembler for​ $15,052 that will provide an annual net cash flow of​ $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is​ 12%. (Round your answer to the nearest​ $1.)

A.

​$6,577

B.

​$7,621

C.

​$4,568

D.

​$1,056

Answer 1

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$15,052. It is entered with a negative sign since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the required rate of return of 12%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 12% required rate of return is $6,576.6572 $6,577.

Hence the answer is option a.

In case of any query, kindly comment on the solution.