Natchez, Inc. is considering the purchase of a new machine costing $200,000. The company will incur $5,000 per year in cash operating expenses but it will allow the company to earn an additional $100,000 per year in revenues. Natchez expects the machine to provide future benefits for 3 years and salvage value at the end of the 3-year period to be $10,000. The company uses straight-line depreciation method. The income tax rate is 30%. If the required rate of return is 10%, how much is the net present value of this project

$20,138.74

Explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.  

NPV can be calculated using a financial calculator  

To determine cash flow, use this formula

Cash flow = (revenue - cost - depreciation) (1 - tax rate) + depreciation

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

(200,000 - 10,000) / 3 = 63,333

(100,000 - 5000 - 63,333) x ( 1 - 0.3) + 63,333 = 85499.90

Cash flow in year 0 = $-200,000

Cash flow in year 1 = 85499.90

Cash flow in year 2 = 85499.90

Cash flow in year 3 = 85499.90 + 10,000 = 95,499.90

I = 10

NPV = $20,138.74

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi