A company is considering the purchase of new equipment for $84,000. The projected after-tax net income is $4,300 after deducting $28,000 of depreciation. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 9% return on investment. The present value of an annuity of 1 for various periods follows: Periods Present value of an annuity of 1 at 9% 1 0.9174 2 1.7591 3 2.5313 What is the net present value of this machine assuming all cash flows occur at year-end?
NPV of the project is = $ -2239.18
Working Notes for the above answer is as follow
| After Tax Cash flow | 4300 |
| Add: | |
| Depriciation | 28000 |
| Net Cash Flow | 32300 |
| Year | Cash Flow | PV factor @ 9% | NPV |
| 0 | -84000 | 1 | -84000 |
| 1 | 32300 | 0.917431193 | 29633.02752 |
| 2 | 32300 | 0.841679993 | 27186.26378 |
| 3 | 32300 | 0.77218348 | 24941.52641 |
| -2239.182289 |
