Exercise 25-6 Net present value LO P3

1. A new operating system for an existing machine is expected to cost $800,000 and have a useful life of six years. The system yields an incremental after-tax income of $300,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $28,200.
2. A machine costs $460,000, has a $34,700 salvage value, is expected to last eight years, and will generate an after-tax income of $70,000 per year after straight-line depreciation.

Assume the company requires a 10% 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 $800,000 and have a useful life of six years. The system yields an incremental after-tax income of $300,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $28,200. (Round your answers to the nearest whole dollar.)

A machine costs $460,000, has a $34,700 salvage value, is expected to last eight years, and will generate an after-tax income of $70,000 per year after straight-line depreciation. (Round your answers to the nearest whole dollar.)

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