Sam Is Considering the Purchase of a Vending Machine to Sell

Multiple Choice

Sam is considering the purchase of a vending machine to sell sodas. The cost of the vending machine is $3,400. Sam estimates that the vending machine will last for five years and will provide net income of $800 each year for its lifetime. Suppose the seller of the vending machine allows Sam to defer, without penalty or interest, payment for the vending machine until the end of the first year. The net present value at 7% is $____.

A) -119.84
B) 102.58
C) 3,738.32
D) 109.77