The Holly Tree Company plans to purchase a new machine that will increase its manufacturing speed and save the company money. The cost of this machine is $66,000. The annual cash flow projections are below. If the cost of capital is 10 percent, what is the net present value?

The Holly Tree Company plans to purchase a new machine that will increase its manufacturing speed and save the company money. The cost of this machine is $66,000. The annual cash flow projections are below. If the cost of capital is 10 percent, what is the net present value?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 1PA: Your company is planning to purchase a new log splitter for is lawn and garden business. The new...

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Question

Year Cash Flow

1....................................... $21,000

2....................................... 29,000

3....................................... 36,000

4....................................... 16,000

5....................................... 8,000

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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