Angelo Bank is planning to replace some old ATM machines and has decided to use the York Machine. Anita Chavez, the controller, has prepared the analysis shown here. She has recommended purchasing the machine based on the positive net present value shown in the analysis. The York Machine has an estimated useful life of five years and an expected residual value of $35,000. Its purchase price is $385,000. Two existing ATMs, each having a carrying value of $25,000, can be sold to a neighboring bank for a total of $50,000. Annual operating cash inflows are expected to increase in the following manner: Year 1 Year 2 Year 3 Year 4 Year 5 $79,900 76,600 79,900 83,200 86,500 Angelo Bank uses straight-line depreciation. The minimum rate of return is 12 percent. Angelo Bank Capital Investment Analysis Net Present Value Method Year Net Cash Inflows Present Value Factor $85,000 0.909 2 80,000 0.826 3 85,000 0.751 4 90,000 0.683 5 95,000 0.621 5 (residual value) 35,000 0.621 Total present value Initial investment $385,000 Less proceeds from the sale of existing ATM machines 50,000 Net capital investment Net present value Present Value $ 77,265 66,080 63,835 61,470 58,995 21,735 $ 349,380 335,000 $ 14,380 1. Analyze Chavez's work. (Round to the nearest dollar.) What changes need to be made in her capital investment analysis? 2. What would be your recommendation to bank management about the purchase of the York Machine? fx B D F G K M 1 Chapter 10, C 4. Please ONLY place data in the yellow cells. 2 4 1. Managerial Analysis 5 6 7 8 10 12 13 14 16 17 Angelo Federal Bank Capital Investment Analysis Net Present Value Method Expected Net Cash Inflows $ - 0 0 0 18 Year 12% Factor* - 0 0 Present Value (Rounded) $ - 0 0 0 20 1 21 2 22 3 0 23 4 0 0 0 - 0 24 5 0 0 0 25 5 0 (residual value) Total present value of cash inflows 26 $ - 0 28 $ - 0 32 $ 0 30 Total present value of cash inflows 31 Net capital investment Initial investment 33 Less proceeds from sale of existing teller machines Net capital investment 36 Net present value 34 0 35 - - 0 $ - 0 39 42 40 * Table 1 in Appendix A on present value tables. 44 2. Mangerial Analysis 45 Ch 10 C4