TB MC Qu. 16-36 A new asset is expected to provide service over the next...

A new asset is expected to provide service over the next four years. It will cost $600,000, generates annual cash inflows of $180,000, and requires cash operating expenses of $40,000 each year. In addition, a $20,000 overhaul will be needed in year 3.

Period	FV of 1 (i = 9%)				FV of a series of $1 cash flows (i = 9%)				PV of $1 (i = 9%)				PV of a series of $1 cash flows (i = 9%)
1		1.090				1.000				0.917				0.917
2		1.188				2.090				0.842				1.759
3		1.295				3.278				0.772				2.531
4		1.412				4.573				0.708				3.240

If the company requires a 9% rate of return, the net present value of this machine would be:

Multiple Choice

a) $(161,840), and the machine meets the company's rate-of-return requirement.

b) $(161,840), and the machine does not meet the company's rate-of-return requirement.

c) $(166,400), and the machine does not meet the company's rate-of-return requirement.

d) $(190,580), and the machine meets the company's rate-of-return requirement.

e) none