# Calculate the Net Present Value of Machine A

## How do we calculate the Net Present Value of Machine A?

Let's find out how to calculate the Net Present Value of Machine A!

## Calculation of Net Present Value (NPV) for Machine A

The Net Present Value of Machine A is R157,945.86.

To calculate the Net Present Value (NPV) of Machine A, we need to discount the expected **cash flows** to their present value and subtract the initial cost. The formula for NPV is as follows:

NPV = (Cash Flow Year 1 / (1 + r)^1) + (Cash Flow Year 2 / (1 + r)^2) + ... + (Cash Flow Year n / (1 + r)^n) - Initial Cost

Where r is the required **rate of return** and n is the number of years.

Using the given data:

Cash Flow Year 1 = 40,000

Cash Flow Year 2 = 30,000

Cash Flow Year 3 = 60,000

Cash Flow Year 4 = 70,000

Cash Flow Year 5 = 20,000

Initial Cost = 400,000

Required Rate of Return = 12%

Number of Years = 5

Calculating the present value of each cash flow using the formula (Cash Flow / (1 + r)^n):

Present Value Year 1 = 40,000 / (1 + 0.12)^1 = 35,714.29

Present Value Year 2 = 30,000 / (1 + 0.12)^2 = 23,809.52

Present Value Year 3 = 60,000 / (1 + 0.12)^3 = 42,484.59

Present Value Year 4 = 70,000 / (1 + 0.12)^4 = 43,721.51

Present Value Year 5 = 20,000 / (1 + 0.12)^5 = 11,214.95

Summing up the present values and subtracting the **initial cost**:

NPV = 35,714.29 + 23,809.52 + 42,484.59 + 43,721.51 + 11,214.95 - 400,000 = 157,945.86

Now you know how to calculate the Net Present Value of Machine A! Party on! 🎉