Question

A new operating system for an existing machine is expected to cost $740,000 and have a...

  1. 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.
  2. 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.

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.)

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

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.)

Cash Flow Select Chart Amount x PV Factor = Present Value
Annual cash flow = $0
Residual value = 0
Net present value
0 0
Add a comment Improve this question Transcribed image text
Answer #1

L

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.

Add a comment
Know the answer?
Add Answer to:
A new operating system for an existing machine is expected to cost $740,000 and have a...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • a A new operating system for an existing machine is expected to cost $790,000 and have a useful Iife of sbx years....

    a A new operating system for an existing machine is expected to cost $790,000 and have a useful Iife of sbx years. The system ylelds an Incremental after-tax income of $160,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $11,800. b. A machine costs $450,000, has a $38,600 salvage value, Is expected to last elght years, and will generate an after-tax income of $84,000 per year after straight-line depreciation Assume the company requires...

  • a. A new operating system for an existing machine is expected to cost $570,000 and have...

    a. A new operating system for an existing machine is expected to cost $570,000 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 $14,000. b. A machine costs $600,000, has a $34,400 salvage value, is expected to last eight years, and will generate an after-tax income of $78,000 per year after straight-line depreciation Assume the company requires...

  • a. A new operating system for an existing machine is expected to cost $710,000 and have...

    a. A new operating system for an existing machine is expected to cost $710,000 and have a useful life of six years. The system yields an incremental after-tax income of $190,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,800. b. A machine costs $450,000, has a $29,300 salvage value, is expected to last eight years, and will generate an after-tax income of $62,000 per year after straight-line depreciation. Assume the company requires...

  • A new operating system for an existing machine is expected to cost $760,000 and have a...

    A new operating system for an existing machine is expected to cost $760,000 and have a useful life of six years. The system yields an incremental after-tax income of $270,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $24,400. A machine costs $460,000, has a $30,800 salvage value, is expected to last eight years, and will generate an after-tax income of $60,000 per year after straight-line depreciation. Assume the company requires a 12%...

  • . A new operating system for an existing machine is expected to cost $730.000 and have...

    . A new operating system for an existing machine is expected to cost $730.000 and have a useful life of six years. The system yields an incremental after-tax income of $280,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $22,000. b. A machine costs $510,000, has a $22,400 salvage value, is expected to last eight years, and will generate an after-tax Income of $88,000 per year after straight-line depreciation. Assume the company requires...

  • a. A new operating system for an existing machine is expected to cost $530,000 and have...

    a. A new operating system for an existing machine is expected to cost $530,000 and have a useful life of six years. The system yields an incremental after-tax income of $295,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $11,400. b. A machine costs $510,000, has a $33,800 salvage value, is expected to last eight years, and will generate an after-tax income of $72,000 per year after straight-line depreciation. Assume the company requires...

  • a. A new operating system for an existing machine is expected to cost $701,000 and have...

    a. A new operating system for an existing machine is expected to cost $701,000 and have a useful life of six years. The system yields an incremental after-tax income of $205,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $65,000. b. A machine costs $490,000, has a $42,000 salvage value, is expected to last eight years, and will generate an after-tax income of $115,000 per year after straight-line depreciation. Assume the company requires...

  • A new operating system for an existing machine is expected to cost $750,000 and have a...

    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 $160,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $29,200. A machine costs $510,000, has a $30,500 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 12%...

  • a. A new operating system for an existing machine is expected to cost $667,000 and have...

    a. A new operating system for an existing machine is expected to cost $667,000 and have a useful life of six years. The system yields an incremental after-tax income of $195,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $55,000. b. A machine costs $470,000, has a $38,000 salvage value, is expected to last eight years, and will generate an after-tax income of $105,000 per year after straight-line depreciation. Assume the company requires...

  • a. A new operating system for an existing machine is expected to cost $530,000 and have...

    a. A new operating system for an existing machine is expected to cost $530,000 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 $25,200. b. A machine costs $390,000, has a $38,600 salvage value, is expected to last eight years, and will generate an after-tax income of $82,000 per year after straight-line depreciation. Assume the company requires...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT