Question

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $332,233 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 15%.

What is the NPV if the company decides to wait 2 years to purchases the machine? (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 @15%	Disc CF
0	$ -15,40,000.00	1.0000	$ -15,40,000.00
1	$     3,32,233.00	0.8696	$     2,88,898.26
2	$     3,32,233.00	0.7561	$     2,51,215.88
3	$     3,32,233.00	0.6575	$     2,18,448.59
4	$     3,32,233.00	0.5718	$     1,89,955.30
5	$     3,32,233.00	0.4972	$     1,65,178.52
6	$     3,32,233.00	0.4323	$     1,43,633.49
7	$     3,32,233.00	0.3759	$     1,24,898.69
8	$     3,32,233.00	0.3269	$     1,08,607.56
NPV			$      -49,163.71