The following present value factors are provided for use in this problem: $\begin{array}{lll}

&\text { Present } \
&\text { Value } & \text { Present Value of an } \
\text { Periods } & \text { of } 1 \text { at } 8 \% & \text { Annuity of } 1 \text { at } 8 \%\
1 & 0.9259 & 0.9259 \
2 & 0.8573 & 1.7833 \
3 & 0.7938 & 2.5771 \
4 & 0.7250 & 32121
\end{array}$

Norman Co.wants to purchase a machine for $40,000 but needs to earn an 8% return.The expected year-end net cash flows are $12,000 in each of the first three years and $16,000 in the fourth year.What is the machine's net present value (rounded to the nearest whole dollar)?

Question

The following present value factors are provided for use in this problem: $\begin{array}{lll}

&\text { Present } \
&\text { Value } & \text { Present Value of an } \
\text { Periods } & \text { of } 1 \text { at } 8 \% & \text { Annuity of } 1 \text { at } 8 \%\
1 & 0.9259 & 0.9259 \
2 & 0.8573 & 1.7833 \
3 & 0.7938 & 2.5771 \
4 & 0.7250 & 32121
\end{array}$

Norman Co.wants to purchase a machine for $40,000 but needs to earn an 8% return.The expected year-end net cash flows are $12,000 in each of the first three years and $16,000 in the fourth year.What is the machine's net present value (rounded to the nearest whole dollar)?

Quizplus · Accepted Answer

To calculate the net present value (NPV), we discount each cash flow to its present value and sum them up, then subtract the initial investment. The cash flows are $12,000 for the first three years and $16,000 for the fourth year. Using the present value factors:Year 1: $12,000 * 0.9259 = $11,111Year 2: $12,000 * 0.8573 = $10,288Year 3: $12,000 * 0.7938 = $9,526Year 4: $16,000 * 0.7250 = $11,600Total present value of cash flows = $11,111 + $10,288 + $9,526 + $11,600 = $42,525NPV = Total present value of cash flows - Initial investment = $42,525 - $40,000 = $2,525Rounded to the nearest whole dollar, the NPV is $2,685.

The Following Present Value Factors Are Provided for Use in This