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A new operating system for an existing machine is expected to cost $780,000 and have a...

  1. A new operating system for an existing machine is expected to cost $780,000 and have a useful life of six years. The system yields an incremental after-tax income of $285,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $24,400.
  2. A machine costs $420,000, has a $36,500 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 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.)

Cash Flow Select Chart Amount x PV Factor = Present Value
Annual cash flow Present Value of 1 $410,933 x 0.5066 = $208,179
Residual value = 0
Immediate cash outflows
Present value of cash inflows
Net present value
Cash Flow Select Chart Amount x PV Factor = Present Value
Annual cash flow x = $
Residual value =
Net present value

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S.No Machine -1 Machine-2 780000 420000 24400 36500 Answer) Particulars 1 Cost 2 Solavge value 3 Life (years) 4 incremental i

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