Basic NPV: No Salvage Value or Taxes Carrie Rushing is considering the purchase
ID: 2461097 • Letter: B
Question
Basic NPV: No Salvage Value or Taxes
Carrie Rushing is considering the purchase of a new production machine that costs $90,000. She has been told to expect decreased annual operating expenses of $35,000 for four years. At the end of the fourth year, the machine will have no salvage value and will be scrapped.
Required:
What is the net present value of the machine if Carrie's cost of capital is 8 percent? Use the time value of money charts for your calculations. (Ignore income taxes.) Round your answer to nearest whole number.
Explanation / Answer
Present value of cash inflows + $ 35,000 x PVAi=8%, n=4 = 35,000 x 3.312 = $ 115,920
Present value of cash outflows = $ 90,000
Net present value = $ ( 115,920 - 90,000) = $ 25,920