Phil Emley owns a garage and is contemplating purchasing a tire retreading machi

Question

Phil Emley owns a garage and is contemplating purchasing a tire retreading machine for $20,000. After estimating costs and revenues, Phil projects a net cash flow from the retreading machine of $4,200 annually for 7 years. Phil hopes to earn a return of 11 % on such investments.

Click here to view the factor table.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

What is the present value of the retreading operation? (Round answer to 2 decimal places, e.g. 25.25.)

Explanation / Answer

Taking salvage value of machine as zero,

PMT = 4200

I = 11%

T = 7 years

FV = 0

We calculate PV = 19,791.22

NPV = 19791 - 20,000 = -208.78

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