A new operating system for an existing machine is expected to cost $660,000 and have a useful life of six years. The system yields an incremental after-tax income of $190,000 each year after deducting its staring-line depreciation. The predicted salvage value of the system is $13,400.

A machine costs $570,000, has a $31,100 salvage value, is expected to last eight years, and will generate an after-tax income of $70,000 per year after straight-line depreciation.

Assume the company requires 10% rate of return on its investments. Compute the net present value of each potential investment. PV of $1, FV of $1, and FVA of $1)

Cashflow Select Chart Amount X PV Factor = Present Value

Annual Cash flow

Residual Value