9. Mackenzie PLC is considering expanding a production line. The new equipment for the line will cost $255,000. In addition, the cost of delivery is $12,250 and there is an annual maintenance contract for $1,500. The new line is expected to generate cash flows for the next four years of 65,000; 98,000; 126,000; and 132,000. Mackenzie's discount rate for the project is 9 3/8%. The net present value of the project is closest to:

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Business

Riley Sexton

12 December, 21:36

9. Mackenzie PLC is considering expanding a production line. The new equipment for the line will cost $255,000. In addition, the cost of delivery is $12,250 and there is an annual maintenance contract for $1,500. The new line is expected to generate cash flows for the next four years of 65,000; 98,000; 126,000; and 132,000. Mackenzie's discount rate for the project is 9 3/8%. The net present value of the project is closest to:

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Carlson · Answer 1

Net Present Value = $59,632.78

Explanation:

The net present value NPV) of a project is the present value of cash inflow less the present value of cash outflow of the project.

NPV = PV of cash inflow - PV of cash outflow

Present value of cash inflow:

65,000 * (1.09375) ^ (-1) + 98000 * (1.09375) ^ (-2) + 126,000 * (1.09375) ^ (-3) + 132,000 * (1.09375) ^ (-4) = 326882.7792

PV of annual maintenance cost:

=1,500 * (1 - 1.09375^ (-4)) / 0.09375

=4819.84773

NPV = 26882.7792 - 4819.84773 - (255,000+12250)

= 59,632.78