Stratford Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $90,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, and assuming the company's discount rate is 10%, what is the purchase price of the machine if the net present value of the investment is $170,000

Question

Giovanna Crane

Business

25 April, 07:16

Stratford Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $90,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, and assuming the company's discount rate is 10%, what is the purchase price of the machine if the net present value of the investment is $170,000

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Answers (1)

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Atticus · Answer 1

The price o the machine is = $268,157.69

Explanation:

The Net present value is the difference between the present value (PV) cash inflows and the initial cost of the investment.

PV of cash inflow =

90,000 * (1 - (1.1) ^ (-7)) / 0.1

= 438,157.69

NPV = PV of cash inflow - cost of the machine

Let represent cost of the machine as " y "

170,000 = 438,157.69 - y

y = 438,157.69 - 170,000

y = 268,157.69

The price o the machine is = $268,157.69