Your Company purchased a machine with an estimated useful life of 8 years. The machine will...

Your Company purchased a machine with an estimated useful life of 8 years. The machine will generate cash inflows of $96,000 each year. The salvage value at the end of the project is $80,000. Your Company's discount rate is 6%. The net present value of the investment is ($7,500). What is the purchase price of the machine?

Solutions

Expert Solution

Net present value (NPV) = Present value of cash inflows (-) Initial investment

Present value of cash inflows:

Net present value (NPV) = -$7,500

Net present value (NPV) = Present value of cash inflows (-) Initial investment
Initial investment = Present value of cash inflows (-) NPV = $646,333.18 - ($7,500) = $646,333.18 + $7,500 = $653,833.18

Check:

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over the life of an investment project.
NPV is used to evaluate investment projects in capital budgeting.
A project with a positive NPV is accepted. A positive NPV indicates that the project will result in net cash inflows in today's dollars.
A project with a negative NPV is rejected. A negative NPV indicates that the project will result in net cash outflows in today's dollars.
The cash flows are discounted at a required rate of return. It may be a weighted average cost of capital, cost of debt, etc.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

A machine was purchased on January 1 for $100,000. The machine has an estimated useful life...

A machine was purchased on January 1 for $100,000. The machine has an estimated useful life of 4 years with a salvage value of $10,000. Under the straight-line method, accumulated depreciation at the end of year 2 is:

a) A Company purchased equipment for RO 50,000 with an estimated useful life of 20 years....

a) A Company purchased equipment for RO 50,000 with an estimated useful life of 20 years. At the end of the 10 year, company determined that the equipment would last only 5 more years. Does this revision affect depreciation calculated previously? Yes or no, justify your answer. b) You are required to calculate the rate of depreciation and the depreciation to be charged at the end of each year by using reducing balance method for 4 years. Life of the...

When originally purchased, a vehicle costing $24,300 had an estimated useful life of 8 years and...

When originally purchased, a vehicle costing $24,300 had an estimated useful life of 8 years and an estimated salvage value of $2,300. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:

Torge Company bought a machine for $62,000 cash. The estimated useful life was five years and...

Torge Company bought a machine for $62,000 cash. The estimated useful life was five years and the estimated residual value was $8,000. Assume that the estimated useful life in productive units is 174,000. Units actually produced were 46,400 in year 1 and 52,200 in year 2. Required: 1. Determine the appropriate amounts to complete the following schedule. (Do not round intermediate calculations.) 2-a. Which method would result in the lowest net income for year 1? A.Units-of-production B.Straight-line C.Double-declining-balance 2-b. Which...

BCK company purchased new equipment with an estimated useful life of four years. The cost of...

BCK company purchased new equipment with an estimated useful life of four years. The cost of the equipment was $50,000, and the salvage value was estimated to be $5,000 at the end of four years. The company uses the double-declining-balance method for book depreciation. (i) What is the amount of depreciation for the fourth year of use? (ii) What is the book value of the asset at the end of the third year?

On January 1, 2017, company purchased a molding machine at 67.000 TL. The estimated useful life...

On January 1, 2017, company purchased a molding machine at 67.000 TL. The estimated useful life of the machine is 4 years and the estimated salvage value is 2.000 TL. At the beginning of the 3rd year a major renovation is maintained on the machine. The cost of the renovation is 34.000 TL. Because of the renovation estimated useful life extended to 6 years in total and the salvage value increased to 2.500 TL. Assume the company uses double declining method prepare...

A new machine costs $120,000, has an estimated useful life of five years and an estimated...

A new machine costs $120,000, has an estimated useful life of five years and an estimated salvage value of $15,000 at the end of that time. It is expected that the machine can produce 210,000 widgets during its useful life. The New Times Company purchases this machine on January 1, 2017, and uses it for exactly three years. During these years the annual production of widgets has been 80,000, 50,000, and 30,000 units, respectively. On January 1, 2020, the machine...

Docker Company purchased equipment on July 19, 2016, for $400,000. The estimated useful life is 8...

Docker Company purchased equipment on July 19, 2016, for $400,000. The estimated useful life is 8 years and residual value is $60,000. On April 7, 2022, they sold the equipment for $100,000. Docker rounds depreciation to the nearest month. Required Provide all journal entries necessary for the sale of the equipment under the following conditions: Docker uses straight line depreciation. Docker uses double declining balance depreciation.

ABC purchased a machine on Jan 1, 2016 for $92788 with an estimated useful life of...

ABC purchased a machine on Jan 1, 2016 for $92788 with an estimated useful life of 12 years and no salvage value ABC uses the straight line depreciation method On December 31, 2018 technological changes suggest the machine may be impaired On December 31, 2018 the machine is expected to generate net cash flows of $6014 per year over its remaining life On December 31, 2018 the fair value of the machine is $45126.42 On Dec 31, 2018 the carrying...

On February 28, 20X1, your company purchases a machine for $150,000 with an estimated useful life...

On February 28, 20X1, your company purchases a machine for $150,000 with an estimated useful life of last 10 years and a salvage value of $10,000. Your company uses SYD depreciation and depreciates assets purchased between the 1st and 15th of the month for the entire month; assets purchased after the 15th of the month are treated as though they were acquired the following month. What is 20X1 depreciation expense? $22,727 $27,273 $25,455 $21,212

Subjects