Question

1. A new operating system for an existing machine is expected to cost $670,000 and have a useful life of six years. The system yields an incremental after-tax income of $255,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $12,200.
2. A machine costs $580,000, has a $33,500 salvage value, is expected to last eight years, and will generate an after-tax income of $86,000 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. A new operating system for an existing machine is expected to cost $670,000 and have a useful life of six years. The system yields an incremental after-tax income of $255,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $12,200. (Round your answers to the nearest whole dollar.)

Cash Flows	Select Chart	Amount	X	PV Factor	=	Present Value
Annual Cash Flows	E				=
Residual Value	E				=

BLANK	F	=
BLANK	F	=
BLANK	Ner present Value	=

E options= Future Value of 1, Future value of Annuity of 1, Present value of 1, Present Value of an Annuity of 1.

F options= Immediate cash outflows, Net present value, Present value of cash inflows

B. A machine costs $580,000, has a $33,500 salvage value, is expected to last eight years, and will generate an after-tax income of $86,000 per year after straight-line depreciation. (Round your answers to the nearest whole dollar.)

Cash Flows	Select Chart	Amount	X	PV Factor	=	Present Value
Annual Cash Flows	E				=
Residual Value	E				=

BLANK	F	=
BLANK	F	=
BLANK	Ner present Value	=

E options= Future Value of 1, Future value of Annuity of 1, Present value of 1, Present Value of an Annuity of 1.

F options= Immediate cash outflows, Net present value, Present value of cash inflows

Answer 1