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Calculating the NPV of given investment

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The management of Opry Company, a wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that would reduce operating costs in its warehouse by $4,000 per year. At the end of the machine's 10-year useful life, it will have no scrap value. The company's required rate of return is 12%

REQUIRED:
(Ignore income taxes)

1. Determine the net present value of the investment in the machine.
2. What is the difference between the total, un-discounted cash inflows and cash outflows over the entire life of the machine?

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Solution Summary

Solution calculates NPV of the given investment. It also calculates the difference between the total, un-discounted cash inflows and cash outflows over the entire life of the machine.

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1.Determine the net present value of the investment in the machine.

PV of purchase value of machine=-$25000 (negative sign indicates cash ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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