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A company is considering the purchase of new equipment for $72,000. The projected annual net...

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Accounting

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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