Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / A new operating system for an existing machine is expected to cost $660,000 and have a useful life of six years
A new operating system for an existing machine is expected to cost $660,000 and have a useful life of six years. The system yields an incremental after-tax income of $190,000 each year after deducting its staring-line depreciation. The predicted salvage value of the system is $13,400.
A machine costs $570,000, has a $31,100 salvage value, is expected to last eight years, and will generate an after-tax income of $70,000 per year after straight-line depreciation.
Assume the company requires 10% rate of return on its investments. Compute the net present value of each potential investment. PV of $1, FV of $1, and FVA of $1)
Cashflow Select Chart Amount X PV Factor = Present Value
Annual Cash flow
Residual Value
Workings:
Annual Cash Flow = Incremental After-tax Income + Depreciation
= $190,000 + ($660,000-$13,400)/6
= $190,000+ $107,766.67
= $297,766.67
Workings:
Annual Cash Flow = Incremental After-tax Income + Depreciation
= $70,000 + ($570,000-$31,100)/8
= $70,000+ $67,362.50
= $137,362.50
