Certified Financial Planner (CFP) Exam 2026 – 400 Free Practice Questions to Pass the Exam

To determine the net present value (NPV) of the machine, you first need to understand that NPV is calculated by taking the present value of expected future cash flows, subtracting the initial investment. The cash flows generated by the machine need to be discounted back to their present value using the discount rate of 6%.

With a purchase price of $5,000, the cash inflows over four years would be calculated using the formula for each cash flow, which is:

\[ PV = \frac{CF}{(1 + r)^t} \]

Where:

- \( PV \) is the present value of the cash flow,

- \( CF \) is the cash flow in each year,

- \( r \) is the discount rate (0.06 in this case),

- \( t \) is the time period in years.

Without specific cash flow amounts given in the question, a typical approach would be to consider each cash flow is equal or to estimate the total cash inflow over the four years. However, for your answer indicating that the NPV is less than $99.64, this implies that when the individual cash flows are computed and discounted at 6%, the total present value remains considerably below the initial investment