A company is considering the purchase of new equipment for $42,000. The projected annual cash inflow is $18,000. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 12% return on investment. The present value of an annuity of $1 for various periods follows: PeriodPresent value of an annuity of 1 at 12%1 0.892921.690132.4018What is the net present value of this machine assuming all cash flows occur at year-end?
What will be an ideal response?
| ? | Present value of |
| Net cash flows* | Present value factor | net cash flows |
| Years 1-3 | $18,000 | 2.4018 | $43,232 |
| Initial investment | (42,000) |
| Net present value | $ 1,232 |
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