Question

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $326,094 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,760,000. The cost of the machine will decline by $110,000 per year until it reaches $1,320,000, where it will remain. The required return is 16%.

What is the NPV if the company purchases the machine today? (Round answer to 2 decimal places. Do not round intermediate calculations)

Answer 1

NPV = PV of Cash Inflows - PV of Cash Outflows

Year	CF	PVF @16%	Disc CF
0	$ -17,60,000.00	1.0000	$ -17,60,000.00
1	$     3,26,094.00	0.8621	$     2,81,115.52
2	$     3,26,094.00	0.7432	$     2,42,340.96
3	$     3,26,094.00	0.6407	$     2,08,914.62
4	$     3,26,094.00	0.5523	$     1,80,098.81
5	$     3,26,094.00	0.4761	$     1,55,257.60
6	$     3,26,094.00	0.4104	$     1,33,842.76
7	$     3,26,094.00	0.3538	$     1,15,381.69
8	$     3,26,094.00	0.3050	$        99,466.97
9	$     3,26,094.00	0.2630	$        85,747.39
10	$     3,26,094.00	0.2267	$        73,920.16
NP			$   -1,83,913.52