[Elhodge]

Hello Everyone.

I'm a newbie here and am taking Business Management and am in my last year but am stuck on some of the Principles of Finance and could use some help with not only the formula but also how to get the answer. I'm using a Texas Instrument BAII Plus financhial calculator. Here's the question.
A corp. is considering purchasing a new machine with an initial outlay of $4,500 and expected cash flows in years 1-4 of $2,200 per year. The risk adjusted discount rate for the firm is 12% and the risk free rate is 5%. I need to compute the net present value of this project.
Any help will be greatly appreciated.
Peace,
Elhodge

[CliffARobinson]

Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore NPV is the sum of all terms,

t - the time of the cash flow
I - the discount rate (the rate of return that could be earned on an investment in the financial markets with similar risk.); the opportunity cost of capital
Rt - the net cash flow (the amount of cash, inflow minus outflow) at time t.

For educational purposes, R0 is commonly placed to the left of the sum to emphasize its role as (minus) the investment.

Source: Wikipedia entry on Net Present Value