Michaels, Inc., purchased a machine for $75,000. The machine has a useful life of five years and no salvage value. Straight-line depreciation is to be used. The machine is expected to generate cash flow from operations, net of income taxes, of $25,000 in each of the five years. Michaels' expected rate of return is 10%. Information on present value factors is as follows:

Period Present Value of $1 at 10% Present value of ordinary annuity of $1 at 10%
1 0.90909 0.90909
2 0.82645 1.73554
3 0.75132 2.48685
4 0.68301 3.16986
5 0.62092 3.79079

What would be the net present value?
Please provide step by step explications.
Thanks!

The present value of the cash inflows states the future cash flows in today's equivalence by multiplying each year's cash inflows by its discounting factor(the present value of ordinary annuity of $1 of 10% for 5 years which is 3.79079)

net present value=($25,000*3.79079)-$75,000

=$94,769.75 -$75,000=$19,769.75

ewomazinoade ewomazinoade · Answer 2 · 2021-12-31T11:18:49+01:00

The net present value of the machine is $19,769.67.

Net present value is the present value of after tax cash flows less the cost of an asset. A positive net present value means that the project is profitable.

Discounted year 1 cash flow: $25,000 / (1.1) = $22,727.27

Discounted year 2 cash flow: $25,000 / (1.1²) = $20,661.57

Discounted year 3 cash flow: $25,000 / (1.1³) = $18,782.70

Discounted year 4 cash flow: $25,000 / (1.1^4)= $17,075.34

Discounted year 5 cash flow: $25,000 / (1.1^5)= $15,523.03

Sum of the discounted cash flows = $94,769.67

NPV = $94,769.67 - $75,000 = $19,769.67

To learn more about how to determine net present value, please check: https://brainly.com/question/15660588