a. A new operating system for an existing machine is expected to cost $820,000 and have a useful life of six years. The system yields an incremental after-tax income of $240,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $100,000. b. A machine costs $560,000, has a $56,000 salvage value, is expected to last eight years, and will generate an after-tax income of $150,000 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 $820,000 and have a useful life of six years. The system yields an incremental after-tax income of $240,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $100,000. (Round your answers to the nearest whole dollar.) Cash Flow Select Chart Amount = Annual cash flow PV Factor 4.3553 = 0.5645 $ 360,000x 100,000 Residual value $ = Present Value of an Annuity of 1 Present Value of 1 Present value of cash inflows Immediate cash outflows Net present value Present Value $ 1,567,908 56,450 $ 1,624,358 (820,000) $ 804,341 X a. A new operating system for an existing machine is expected to cost $820,000 and have a useful life of six years. The system yields an incremental after-tax income of $240,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $100,000. b. A machine costs $560,000, has a $56,000 salvage value, is expected to last eight years, and will generate an after-tax income of $150,000 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 $560,000, has a $56,000 salvage value, is expected to last eight years, and will generate an after-tax income of $150,000 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 5.3349 0.4665 213,000 x 56,000 = Present Value of an Annuity of 1 Present Value of 1 Present value of cash inflows Immediate cash outflows Net present value OOOO Present Value $ 1,136,334 26,124 $ 1,162,458 (560,000) $ 602,465 X
