Question

Quinn Industries is considering the purchase of a machine that would cost $400,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $95,000. The machine would reduce labor and other costs by $82,000 per year. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.) Required: Provide your Excel input and the final net present value amount you calculated. Input the required variables and the computed internal rate of return.

Answer 1

NPV = $21,982.07
Statement showing Cash flows
Particulars	Time	PVf 11%	Amount	PV
Cash Outflows	-	1.00	(400,000.00)	(400,000.00)
PV of Cash outflows = PVCO				(400,000.00)
Cash inflows = labor and other costs	1.00	0.9009	82,000.00	73,873.87
Cash inflows = labor and other costs	2.00	0.8116	82,000.00	66,553.04
Cash inflows = labor and other costs	3.00	0.7312	82,000.00	59,957.69
Cash inflows = labor and other costs	4.00	0.6587	82,000.00	54,015.94
Cash inflows = labor and other costs	5.00	0.5935	82,000.00	48,663.01
Cash inflows = labor and other costs	6.00	0.5346	82,000.00	43,840.55
Cash inflows = labor and other costs	7.00	0.4817	82,000.00	39,495.99
Cash inflows = labor and other costs	8.00	0.4339	82,000.00	35,581.97
Cash inflows = Salvage Value	8.00	0.4339	95,000.00	41,223.02
PV of Cash Inflows =PVCI				421,982.07
NPV= PVCI - PVCO				21,982.07