a. A new operating system for an existing machine is expected to cost $730,000 and have a useful life of six years. The system yields an incremental after-tax income of $255,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000. b. A machine costs $470,000, has a $35,300 salvage value, is expected to last eight years, and will generate an after-tax income of $74,000 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.) X 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 $730,000 and have a useful life of six years. The system yields an incremental after-tax income of $255,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000. (Round your answers to the nearest whole dollar.) Amount = Present Value Select Chart Present Value of an Annuity of PV Factor 4.3550 X = Cash Flow Annual cash flow Residual value S 375,000 $ 1,633,125 Present Value of 1 IS 10,000 x 0.5640 = Present value of cash inflows Immediate cash outflows Net present value 5,640 $ 1,638,765 730,000 908,765 X a. A new operating system for an existing machine is expected to cost $730,000 and have a useful life of six years. The system yields an incremental after-tax income of $255,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000. b. A machine costs $470,000, has a $35,300 salvage value, is expected to last eight years, and will generate an after-tax income of $74,000 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 $470,000, has a $35,300 salvage value, is expected to last eight years, and will generate an after-tax income of $74,000 per year after straight-line depreciation. (Round your answers to the nearest whole dollar.) Amount Present Value Cash Flow Annual cash flow Residual value PV Factor 5.3350 = Select Chart Present Value of an Annuity of 1 $ 128,338 X $ 684,683 Future Value of 1 x $ 35,300X 0.4670 x = 16.485 $ Present value of cash inflows Immediate cash outflows Net present value 701,168 470,000 231,168 X $
