Exercise 24-6 Net present value LO P3

1. A new operating system for an existing machine is expected to cost $760,000 and have a useful life of six years. The system yields an incremental after-tax income of $210,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $28,200.
2. A machine costs $470,000, has a $28,400 salvage value, is expected to last eight years, and will generate an after-tax income of $66,000 per year after straight-line depreciation.

Assume the company requires a 12% 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.)

Required ARequired B A new operating system for an existing machine is expected to cost $760,000 and have a useful life of six years. The system yields an incremental after-tax income of $210,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $28,200. (Round your answers to the nearest whole dollar.) Cash Flow Select Chart Amount x PV Factor Present Value Annual cash flow Residual value 0 Net present value Required ARequired B Required A A machine costs $470,000, has a $28,400 salvage value, is expected to last eight years, and will generate an after-tax income of $66,000 per year after straight-line depreciation. (Round your answers to the nearest whole dollar.) Cash Flow Select Chart Amount |x| PV Factor |=| Present Value Annual cash flow 0 Residual value 0 Net present value