Assume the company requires a 12% 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 $740,000 and have a useful life of six years. The system yields an incremental after-tax income of $215,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $25,000. (Round your answers to the nearest whole dollar.)
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A machine costs $380,000, has a $33,500 salvage value, is expected to last eight years, and will generate an after-tax income of $84,000 per year after straight-line depreciation. (Round your answers to the nearest whole dollar.)
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a) | Annual Depreciation = ($740000-25000)/6 years =$119167 | ||||||
Annual Cash Flow = Net Income + Annual Depreciation | |||||||
=$215000+119167 | |||||||
=$334167 | |||||||
Cash Flow | Select Chart | Amount | * | PV Factor | = | Present Value | |
Annual Cash Flow | PVA of $1 | $ 3,34,167 | * | 4.111407 | = | $ 13,73,897 | |
Residual Value | PV of $1 | $ 25,000 | * | 0.506631 | = | $ 12,666 | |
Initial Investment | $ 7,40,000 | ||||||
Net Present Value | $ 6,46,562 | ||||||
a) | Annual Depreciation = ($380000-33500)/8 years =$43312.5 | ||||||
Annual Cash Flow = Net Income + Annual Depreciation | |||||||
=$84000+43312.50 | |||||||
=$127312.5 | |||||||
Cash Flow | Select Chart | Amount | * | PV Factor | = | Present Value | |
Annual Cash Flow | PVA of $1 | $ 1,27,313 | * | 4.96764 | = | $ 6,32,443 | |
Residual Value | PV of $1 | $ 33,500 | * | 0.403883 | = | $ 13,530 | |
Initial Investment | $ 3,80,000.00 | ||||||
Net Present Value | $ 2,65,973 | ||||||
Let me know wrong answer,if any.
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