Stratford Company purchased a machine with an estimated useful life of seven years.The machine will generate cash inflows of $90,000 each year over the next seven years.If the machine has no salvage value at the end of seven years,and assuming the company's discount rate is 10%,what is the purchase price of the machine if the net present value of the investment is $170,000? (Ignore income taxes in this problem.)(Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)
A) $170,000.
B) $221,950.
C) $268,158.
D) $608,157.

Question

Quizplus · Accepted Answer

The net present value (NPV) formula can be used to calculate the purchase price of the machine:

NPV = Present value of cash inflows - Purchase price

Substituting values:

$170,000 = $90,000 × [(1 - 1 / (1 + 0.10)^7) / 0.10] - Purchase price

Solving for Purchase price:

Purchase price = $268,158

Therefore, the best choice is C.

Stratford Company Purchased a Machine with an Estimated Useful Life