Valuing an Asset for the Purpose of Making a Purchasing Decision
Sid Patel owns a service station and has the opportunity to purchase a car-wash machine for $15,000. After carefully studying projected costs and revenues, Patel estimates that the car-wash machine will produce a net cash flow of $2,600 annually and will last for eight years. He determines that an interest rate of 14 percent is adequate for his business.
Note: The following Table 2 on present value may be used where appropriate to solve this problem.
Calculate the net present value of the machine to Patel. Round your answer to the nearest cent.$ Is your answer positive or negative?
Does the purchase appear to be a smart business decision?