24-6 Net present value LO P3

a.A new operating system for an existing machine is expected to cost $650,000 and have a useful life of six years. The system yields an incremental after-tax income of $190,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $50,000.

b.A machine costs $460,000, has a $36,000 salvage value, is expected to last eight years, and will generate an after-tax income of $100,000 per year after straight-line depreciation.

a. A new operating system for an existing machine is expected to cost $650,000 and have a useful life of six years. The system yie an incremental after-tax income of $190,000 each year after deducting its straight-line depreciation. The predicted salvage value the system is $50,000. b. A machine costs $460,000, has a $36,000 salvage value, is expected to last eight years, and will generate an after-tax income $100,000 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.) Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B A new operating system for an existing machine is expected to cost $650,000 and have a useful life of six years. The system yields an incremental after-tax income of $190,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $50,000. (Round your answers to the nearest whole dollar.) Cash Flow Annual cash flow Residual value $ Amount 140,000 50,000 PV Factor 4.3553 0.5645 $ Select Chart Present Value of an Annuity of 1 Present Value of 1 Present value of cash inflows Immediate cash outflows Net present value Present Value 609,742 28,225 637,967 650,000 (12,033) $ $ $