The Net Present Value of a Purchase
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A new electronic process monitor costs $140,000. The cost will be depreciated straight-line to zero over five years. The monitor will actually be worthless in five years. The new monitor would save us $50,000 per year before taxes in operating costs. If we require a 10% return, what is the NPV of the purchase? Assume a 34% tax rate
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This solution provides step by step calculations for net present value of a purchase.
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We would consider the cash inflows first:
The cash inflow at the end of each of the five years $50,000 * (1 - 34%) = $33,000
Present value of 1st ...
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