Read Me Firist-30619.201830Connect pa ?C HW Saved Help Save & Exi A new operatin

Question

Read Me Firist-30619.201830Connect pa ?C HW Saved Help Save & Exi A new operating system for an existing machine is expected to cost $540,000 and have a useful life of six years. The system yields an incremental after-tax income of $175,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $14,400 a. b. A machine costs $560,000, has a $36,800 salvage value, is expected to last eight years, and will generate an after-tax income of $76,000 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 S1, PVA of S1, and FVA of $) (Use appropriate factor(s) from the tables provided.) ook Complete this question by entering your answers in the tabs below A new operating system for an existing machine is expected to cost $540,000 and have a useful life of six years. The system yields an incremental after-tax income of $175,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $14,400. (Round your answers to the nearest whole dollar.) Next > K Prev 5 of 6

Explanation / Answer

Req a: Annual cash inflowws: Annual net income 175000 Add: Annual dep 87600 (540000-14400)/6 Annual inflows 262600 Cash flows Annual cash flows Annuity 262600 4.3553 1143702 Salvage PVF 14400 0.5645 8128.8 Total present value of inflows 1151831 Less; Initial Investment 540000 Net present value 611830.6 Req b: Annual cash inflowws: Annual net income 76000 Add: Annual dep 65400 (560000-36800)/8 Annual inflows 141400 Cash flows Annual cash flows Annuity 141400 5.3349 754354.9 Salvage PVF 36800 0.4665 17167.2 Total present value of inflows 771522.1 Less; Initial Investment 560000 Net present value 211522.1

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