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NPV Questions

1. Winter Corporation expects to buy a machine for $126,000, which will be depreciated over an 8 year period on a straight-line basis with no salvage value. The machine is expected to generate a net cash flow of $36,000 per year. What is the payback period?

2. If credit sales are $20,000 in March and $16,000 in April, and if 80% are collected in the month of sale while 20% are collected in the following month, what are April collections?

3. What is the present value of your trust fund if it promises to pay you $50,000 on your 30th birthday (7 years from today) and earns 10% compounded annually?

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Answer 1:

Cost of Machine = 126,000
Useful Life = 8 years
Salvage Value = 0
Depreciation Per Year = 126,000/8 = 15,750

There is no information given about the interest rate. ...

Solution Summary

The solution answers questions related to NPV and Payback period.