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Compute Net Present Value

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Sealand Corporation is considering acquiring a newer, more modern machine. The machine, which requires an initial outlay of $3 million, will generate cash flows of $1 million at the MIDDLE of each year for 5 years. Investors could earn 10% elsewhere in opportunities of equal risk. Compute the net present value and explain what it means to investors.

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Solution Summary

The expert computes the net present value for Sealand Corporation.

Solution provided by:
Sonia Agarwal, CA
Education
  • Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
  • Bachelor of Commerce, West Bengal University
Recent Feedback
  • "I got this feedback and I wanted to know if you can explain it to me. I noticed something within your workings which I believe is incorrect.  It looks like you've mistaken the Debt ratio for the Equity Multiplier.  You've done a calculation to determine Return on Equity (ROE) but if you take a look at the ratios provided for us you'll see ROE listed on the bottom line already.  You can use ROE, Profit Margin and Total Asset Turnover to figure out the Equity Multiplier amount.  Equity multiplier is not provided for us and we need to calculate it.  I really hope this is helpful to you.  "
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