a. A new operating system for an existing machine is expected to cost $701,000 and have a useful life of six years. The system yields an incremental after-tax income of $205,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $65,000. b. A machine costs $490,000, has a $42,000 salvage value, is expected to last eight years, and will generate an after-tax income of $115,000 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 $701,000 and have a useful life of six years. The system yields an incremental after-tax income of $205,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $65,000. (Round your answers to the nearest whole dollar.) Cash Flow Amount Annual cash flow Residual value PV Factor 5.3550 X 0.5640 X = $ S 311,000 65,000 x 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 $ 1,665,405 36,660 $ 1,702,065 (701,000) $ 690,065 X a. A new operating system for an existing machine is expected to cost $701,000 and have a useful life of six years. The system yields an incremental after-tax income of $205,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $65,000. b. A machine costs $490,000, has a $42,000 salvage value, is expected to last eight years, and will generate an after-tax income of $115,000 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 machine costs $490,000, has a $42,000 salvage value, is expected to last eight years, and will generate an after-tax income of $115,000 per year after straight-line depreciation. (Round your answers to the nearest whole dollar.) Cash Flow Select Chart Amount $ Annual cash flow Residual value $ PV Factor 5.3350 = 0.4670 X 171,000 42,000x $ Present Value of an Annuity of 1 Present Value of 1 Present value of cash inflows Immediate cash outflows Net present value Present Value 912,285 19,614 931,899 (490,000) 441,899 X $ $
