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Whitton Corporation uses a discount rate of 16%. The company has an opportunity to buy a machine now for $18,000 that will yield cash inflows of $10,000 per year for each of the next three years. The machine would have no salvage value. The net present value of this machine is closest to (Ignore income taxes.):

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Zviko

Answer:

$4,458.90

Explanation:

Step 1 : Determine the cashflow

The cashflows for the machine are as follows :

Year 0 = - $18,000

Year 1  =   $10,000

Year 1  =   $10,000

Year 1  =   $10,000

Step 2 : Calculate the net present value

Based on the Discounting rate of 16 % the Net Present Value will be calculated using the CFj Function of a Financial Calculator :

- $18,000 CFj

$10,000  CFj

$10,000  CFj

$10,000  CFj

I/Yr  = 16 %

therefore,

Shift NPV = $4,458.90

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