Raindrip Corp. can purchase a new machine for $1,875,000 that will provide an annual net cash flow of $650,000 per year for five years. The machine will be sold for $120,000 after taxes at the end of year five. What is the net present value of the machine if the required rate of return is 13.5%.

Question

Casey Barnes

Business

26 November, 07:50

Raindrip Corp. can purchase a new machine for $1,875,000 that will provide an annual net cash flow of $650,000 per year for five years. The machine will be sold for $120,000 after taxes at the end of year five. What is the net present value of the machine if the required rate of return is 13.5%.

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Miya · Answer 1

The net present value of the machine if the required rate of return is 13.5% is $447,292

Explanation:

Year Cash Flows PV Factor at 13.5% Net Present Value

0 ($1,875,000) 1 ($1,875,000)

1 $650,000 0.881057269 $572,687.22

2 $650,000 0.776261911 $504,570.24

3 $650,000 0.683931199 $444,555.28

4 $650,000 0.602582554 $391,678.66

5 $650,000 0.530909739 $345,091.33

5 $120,000 0.530909739 $63,709.17

Net Present Value $447,292

therefore, The net present value of the machine if the required rate of return is 13.5% is $447,292