A company is considering the purchase of new equipment for $72,000. The projected annual net...
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A company is considering the purchase of new equipment for $72,000. The projected annual net cash flows are $28,900. 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:
| Period | 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?
-
$24,000
-
$3,900
-
$1,155
-
$27,900
-
$70,623
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