Angelo Bank is planning to replace some old ATM machines and has decided to use the York Machine. Anita Chavez,
Angelo Bank is planning to replace some old ATM machines and has decided to use the York Machine. Anita Chavez, the controller, has prepared the analysis shown here. She has recommended the purchase of the machine based on the positive net present value shown in the analysis. The York Machine has an estimated useful life of five years and an expected residual value of $35,000. Its purchase price is $385,000. Two existing ATMs, each having a carrying value of $25,000, can be sold to a neighboring bank for a total of $50,000.
Annual operating cash inflows are expected to increase in the following manner:
Year 1......... $79,900
Angelo Bank uses straight-line depreciation. The minimum rate of return is 12 percent.
1. Analyze Chavezâ€™s work. (Round to the nearest dollar.) What changes need to be made in her capital investment analysis?
2. What would be your recommendation to bank management about the purchase of the YorkMachine?
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