# Your company is deciding whether to invest in a new machine. The new machine will increase cash...

## Question:

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $321,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at$1,710,000. The cost of the machine will decline by $106,000 per year until it reaches$1,180,000, where it will remain.

If your required return is 13 percent, calculate the NPV today. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

If your required return is 13 percent, calculate the NPV for the following years. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Negative amounts should be indicated by a minus sign.)

Should you purchase the machine?

If so, when should you purchase it? Today, One year from now, Two years from now

## Net Present Value:

Net Present Value is an important Capital Budgeting Technique to determine feasibility of the projects or assets. As per the Time Value of Money concept money receive in future is less in value than money receive today due to opportunity cost associated with it. While calculating NPV we discount all the future cash inflow from the project and calculate their present value. NPV is the difference between PV of cash inflow and initial cash outflow

To Calculate Net Present Value of the project we need to deduct Present Value of cash inflow from initial Cash outflow.

Net Present Value = PV of Cash Inflow - Initial Cash Outflow

## Answer and Explanation:

1.

Annual incremental cash flows = $321,000 Present value of annuity of$1 =

{eq}=\frac{\left \{ 1-(1+r)^{-n} \right \}}{r} {/eq}

Present value...

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#### Learn more about this topic:

Evaluating a Budget Using the Net Present Value Method

from Accounting 301: Applied Managerial Accounting

Chapter 14 / Lesson 3
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