Question

The following present value factors are provided for use in this problem. Periods Present value of $1 at 8% Present value of an Annuity of $1 at 8% 1 0.9259 0.9259 2 0.8573 1.7833 3 0.7938 2.5771 4 0.7350 3.3121 Xavier Co. wants to purchase a machine for $37,700 with a four-year life and a $1,100 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $12,700 in each of the four years. What is the machine's net present value?

Answer 1

• All working forms part of the answer
• NPV = Present values of all inflows – Initial investment

	Amount	Factor used	Present Values
Present Value of Annual Cash Inflows	$                                                 12,700.00	3.3121 [Annuity value at Year #4]	$                42,064
Present Value of Salvage Value	$                                                   1,100.00	0.735 [Present Value factor of Year #4]	$                      809
Total of Present Values of Inflows			$                42,872
Total Present Outflows = Purchase price of machine			$                37,700
Net Present Value of Machine			$                   5,172

• Answer = $ 5,172.17 or $ 5,172