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2 August, 09:41

Daniels Corporation is considering the purchase of new equipment costing $30,000. The projected annual

after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue

is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value.

Daniels requires a 12% return on its investments. The present value of an annuity of 1 for different

periods follows:

What is the net

present value of

the machine?

A. $24,018.

B. $ (3,100).

C. $30,000.

D. $26,900.

E. $ (29,520)

+3
Answers (1)
  1. 2 August, 13:04
    0
    B. $ (3,100).

    Explanation:

    As we know Net Present value is calculated by discounting each years cash flows using using the required rate of return.

    Cash Flow = Net Income + Depreciation = $1,200 + $10,000 = $11,200

    Present value of the 3 years cash flow

    Present value = $11,200 x (1 - (1 + 12%) ^-3) / 12% = $26,900

    Net present value is the sum of all cash inflows and outflows.

    Net Present Value = ($30,000) + $26,900 = ($3,100)
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