27 August, 18:50

# Vextra Corporation is considering the purchase of new equipment costing \$40,500. The projected annual cash inflow is \$12,100, to be received at the end of each year. The machine has a useful life of 4 years and no salvage value. Vextra requires a 12% return on its investments. The present value of an annuity of \$1 for different periods follows:Periods 12%1 0.89292 1.69013 2.40184 3.0373What is the net present value of the machine?\$ (36,751).\$ (3,000).\$40,500.\$6,751.\$ (3,749).

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1. 27 August, 19:04
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Net present value = \$3,749

so correct option is \$3,749

Explanation:

given data

Present value of cash outflow = \$40,500

annual cash inflow = \$12,100

useful life = 4 years

rate on return = 12 %

present value of an annuity = \$1

to find out

net present value

solution

we know here Present value annuity factor @12% for 4 years is given as

Present value annuity factor @12% for 4 years = 3.0373

so we get here Present value of cash inflow that is express as

Present value of cash inflow = Annual cash flow * Present value annuity ... 1

put here value we get

Present value of cash inflow = \$12,100 * 3.0373

Present value of cash inflow = \$36,751

so now we get Net present value that is express as

Net present value = Present value of cash outflow - Present value of cash inflow ... 2

put here value we get

Net present value = \$40,500 - \$36,751

Net present value = \$3,749

so correct option is \$3,749