A company can buy a machine that is expected to have a three-year life and a $21

Question

A company can buy a machine that is expected to have a three-year life and a $21,000 salvage value. The machine will cost $1,764,000 and is expected to produce a $191,000 after-tax net income to be received at the end of each year. If a table of present values of $1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 0.7118 for three years, what is the net present value of the cash flows from the investment, discounted at 12%? (Round intermediate answer to the nearest whole dollar.)

Multiple Choice

a. $105,214

b. $564,457

c. $615,438

d. $689,319

e. $1,869,214

Explanation / Answer

Machine Machine = 1764000 Depreciation = ( 1764000 - 21000 ) / 3 = 581000 After tax net income = 191000 NPV = -Initial Investment + (after tax net income + Depreciation ) x PVIFA 12%,3yrs + salvage value x PVIF 12%,3yrs NPV = -1764000 + (191000 + 581000 ) x 2.4019 + 21000 x 0.7118 NPV = $105214 Answer:a. $105214

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