Question
In: Accounting
Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company...
Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $817,822, $863,275, $937,250, $1,019,610, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment?
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Expert Solution
| NPV is $ 437461.30 | |||||
| Explanation | |||||
| Year | Cost | Cash flows | Total | Discount factor @15% | Present value(Total*discount factor) |
| 0 | $ (4,133,250.00) | $ (4,133,250.00) | 1.000 | $ (4,133,250.00) | |
| 1 | $ 817,822.00 | $ 817,822.00 | 0.870 | $ 711,149.57 | |
| 2 | $ 863,275.00 | $ 863,275.00 | 0.756 | $ 652,759.92 | |
| 3 | $ 937,250.00 | $ 937,250.00 | 0.658 | $ 616,257.09 | |
| 4 | $ 1,019,610.00 | $ 1,019,610.00 | 0.572 | $ 582,965.33 | |
| 5 | $ 1,212,960.00 | $ 1,212,960.00 | 0.497 | $ 603,055.49 | |
| 6 | $ 1,225,000.00 | $ 1,225,000.00 | 0.432 | $ 529,601.30 | |
| NPV | $ (437,461.30) | ||||
| Discount factor formula=1/(1+discount factor)^year | |||||
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