As of January 1, 2011, Alvarado Company wants to acquire a new machine costing $ 196,000 The machine has an estimated useful life of seven years and no salvage value Alvarados tax rate is 30 percent and the depreciation is calculated uniformly The expected pretax cash flows are as follows If Alvara...

After tax cash flows 2011 42000 07 29400 c 1 r 11 ANN 0 FV 29400 n 1 PV 26 ...

As of January 1, 2011, Alvarado Company wants to acquire a new machine costing $ 196,000. The

Question:

As of January 1, 2011, Alvarado Company wants to acquire a new machine costing $ 196,000. The machine has an estimated useful life of seven years and no salvage value. Alvaradoâ€™s tax rate is 30 percent and the depreciation is calculated uniformly. The expected pretax cash flows are as follows:

If Alvarado Company has an 11 percent cost of capital, what is the maximum price Alvarado should pay for the machine? Why? Calculate the net present value of this project. Should Alvarado buy the machine? Why? Net the cash revenues with the cash expenses.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...