Question

5.

1. A new operating system for an existing machine is expected to cost $750,000 and have a useful life of six years. The system yields an incremental after-tax income of $235,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $14,800.
2. A machine costs $460,000, has a $31,700 salvage value, is expected to last eight years, and will generate an after-tax income of $74,000 per year after straight-line depreciation.

Assume the company requires a 10% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

A new operating system for an existing machine is expected to cost $750,000 and have a useful life of six years. The system yields an incremental after-tax income of $235,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $14,800. (Round your answers to the nearest whole dollar.)

	Cash Flow Select Chart Amount x PV Factor = Present Value Annual cash flow = Residual value = Net present value

A machine costs $460,000, has a $31,700 salvage value, is expected to last eight years, and will generate an after-tax income of $74,000 per year after straight-line depreciation. (Round your answers to the nearest whole dollar.)

	Cash Flow Select Chart Amount x PV Factor = Present Value Annual cash flow = Residual value = Net present value

Answer 1