Purchase Solution

# Net Present Value of Investment: Zeron Example

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The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of \$950,000. The investment is expected to generate \$400,000 in annual cash flows for a period of four years. The required rate of return is 12%. The old machine can be sold for \$50,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered.

A \$119,550; yes
B \$314,800; yes
C \$1,019,550; yes
D \$69,550; no

##### Solution Summary

Solution provides steps necessary to calculate the net present value of an investment.

##### Solution Preview

B \$314,800; yes
NPV = PV of cash flows - initial investment
Initial investment = cost ...

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