The following present value factors are provided for use in this problem. 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 (round to the nearest whole dollar)?
A) $(9,075).
B) $2,685.
C) $42,685.
D) $(28,240).
E) $52,000.

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV), we discount each of the cash flows back to their present value using the 8% discount rate and then subtract the initial investment. The present value factors for 8% for years 1 through 4 are approximately 0.926 (year 1), 0.857 (year 2), 0.794 (year 3), and 0.735 (year 4). Calculating the present value of each cash flow:- Year 1: $12,000 * 0.926 = $11,112- Year 2: $12,000 * 0.857 = $10,284- Year 3: $12,000 * 0.794 = $9,528- Year 4: $16,000 * 0.735 = $11,760Sum of present values = $11,112 + $10,284 + $9,528 + $11,760 = $42,684Net present value = Sum of present values - Initial investment = $42,684 - $40,000 = $2,684 (rounded to the nearest whole dollar is $2,685).

The Following Present Value Factors Are Provided for Use in This