Question

Northern Manufacturing Ltd. is considering the investment of $85,000 in a new machine. The machine will generate cash flow of $14,000 per year for each year of its eight-year life and will have a salvage value of $9,000 at the end of its life. The company’s cost of capital is 10%. Table 6-4 and Table 6-5. (Use appropriate factor(s) from the tables provided. Round the PV factors to 4 decimals.)

Required: Calculate the net present value of the proposed investment. (Ignore income taxes.)

Answer 1

Initial Investment	85,000
Annual Cash flow	14,000
Salvage Value	9,000
Year	Annual Cash flow	PV Factor @10%	Present value $
	& Salvage value
1	14,000	0.9091	12,727
2	14,000	0.8264	11,570
3	14,000	0.7513	10,518
4	14,000	0.6830	9,562
5	14,000	0.6209	8,693
6	14,000	0.5645	7,903
7	14,000	0.5132	7,185
8	14,000	0.4665	6,531
8	9,000	0.4665	4,199
Total	121,000		78,888
	Net Present Value	- $ 6,112	=78888-85000