Pristine product is considering the purchase of a new machine. The estimated cost of the machine is $25,000. The machine is expected to generate annual cash inflows for the next four years as follows:
Year 1 = $15,000 annual cash flow
Year 2 = $10,000 annual cash flow
Year 3 = $5,000 annual cash flow
The machine is not expected to have a residual value at the end of its useful life. The company uses a discount rate of 10%. Relevant interest factors for 10% single sum and annuity amounts are:
//////// Single Sum //////// Annuity
N=1 __ .9091 ————– .9091
N=2 __ .8264 —————- 1.7355
N=3 __ .7513 ————– 2.4869
What is the expected net present value for the machine?
a.$657
b.$2,273
c.$(4.343)
d.$18,426