Help Save & Exit MC Qu. 113 A company can buy a machine that... A company can bu

Question

Help Save & Exit MC Qu. 113 A company can buy a machine that... A company can buy a machine that is expected to have a three-year life and a $25,000 salvage value. The machine will cost $1,780,000 and is expected to produce a $195,000 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, 07972 for two years, and 07118 for three years, what is the net present value of the cash flows from the investment, discounted at 12%? 0 Multiple Choice $111,277 $572,999 $621,816

Explanation / Answer

Annual cash flows = 195000+(1780000-25000)/3= 780000 Net present value: Present value if annual net cash flows 1873482 =780000*(0.8929+0.7972+0.7118) Present value of salvage value 17795 Less: Initial investment -1780000 Net present value 111277 Option1 is correct

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