Question

a. A new operating system for an existing machine is expected to cost $580,000 and have a useful life of six years. The system yields an incremental after-tax income of $175,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $19,600. (Round your answers to the nearest whole dollar.)

	Cash Flow Select Chart Amount x PV Factor = Present Value Annual cash flow = $0 Residual value = 0 Net present value

b. A machine costs $430,000, has a $27,800 salvage value, is expected to last eight years, and will generate an after-tax income of $78,000 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 = $0 Residual value = 0 Net present value

Answer 1

Solution:
a)	Cash Flow	Amount	PV [email protected]%	Present Value
	Annual Cash Flow	175000	3.62058	6,33,601.50
	Residual Value	19600	0.396569	7,772.75
			Total Present Value	6,41,374.25
			Less: Outflow	5,80,000.00
			Net Present Value	61,374.25
b)	Cash Flow	Amount	PV [email protected]%	Present Value
	Annual Cash Flow	78000	4.88204	3,80,799.12
	Residual Value	27800	0.389744	10,834.88
			Total Present Value	3,91,634.00
			Less: Outflow	4,30,000.00
			Net Present Value	-38,366.00