Question

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.45 million and create incremental cash flows of $746,414.00 each year for the next five years. The cost of capital is 11.26%. What is the net present value of the J-Mix 2000?

Answer format: Currency: Round to: 2 decimal places.

Answer 1

SOLUTION:

The values provided in the question are as follows:

Caspian Sea Drinks is considering buying the J-Mix 2000.

The machine cost i.e. initial investment or cash outflow =$1.45 million or $1,450,000.00

Incremental cash flows each year for the next five years. I.e. cash inflow =$746,414.00

Number of years (n) =5

The cost of capital (r) =11.26%.

Net present value of the J-Mix 2000 =?

Answer format: Currency: Round to: 2 decimal places.

CALCULATION OF NET PRESENT VALUE (NPV) IF COST OF CAPITAL IS 11.26 %
YEAR	TOTAL BENEFIT/OUTFLOW	DISCOUNTING FACTOR = (1/1+r)^n	PRESENT VALUE
A	B	C	D=B*C
0	-$1,450,000.00	1.0000	-$1,450,000.00
1	$746,414.00	0.8988	$670,876.90
2	$746,414.00	0.8078	$602,953.23
3	$746,414.00	0.7261	$541,971.21
4	$746,414.00	0.6526	$487,109.78
5	$746,414.00	0.5865	$437,771.81
TOTAL OR NET PRESENT VALUE		$1,290,682.93