Question

Assignment Assignment > Open Assignment PRINTER VERSION BACK NEXT Wiley PLUS Problem 13-4 a-b Marinis Corporation is considering buying a brand new machine and has gathered the following data: ASSIGNMENT RESOURCES ACC212 Lab #9 Brief Exercise 13.1 Exercise 13.16 WileyPLUS Problem 13-7 a-b Brief Exercise 13.6 WileyPLUS Problem 13-4 a-b Investment Estimated life Estimated annual cash inflows Estimated annual cash outflows $104,100 5 years $29,500 $10,300 Salvage value for the machine is estimated to be zero. Review Score Review Results by Study Objective Click here to view PV table. Calculate the net present value of the machine assuming a 6% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124. Round present value answer to O decimal places, e.g. 125.) Net Present Value $ Should the company buy the machine based on your results? LINK TO TEXT Further investigation reveals that there would be a sales increase of $7,100 annually as a result of an increase in quality from the customer's perspective and a cost reduction of $2,800 annually as a result of lower warranty claims. Considering these additional facts, calculate the Net Present Value of the machine. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, e.g. 1.25124. Round present value answer to 0 decimal places, e.g. 125.) License Agreement | Privacy Policy | © 2000-2019 John Wiley & Sons, Inc. All Rights Reserved. A Division of John Wiley & Sons, Inc. Version 4.24.17.1

Answer 1

(1)

net present value = present value of the annual net cash flow - initial investment

annual net cash flow = $29500 - $10300 = $19200

therefore,

net present value = ($19200 x PVAF) - $104100

=($19200 x 4.21236) - $104100

= -$23223

where,

PVAF(6%,5) = 4.21236

the company should not buy the machine as the NPV is negative.

(2)

annual net cash flow = ($29500 + $7100) - ($10300 - $2800) = $29100

therefore,

net present value = ($29100 x PVAF) - $104100

=($29100 x 4.21236) - $104100

= $18480

where,

PVAF(6%,5) = 4.21236

the company should buy the machine as the NPV is positive