Question

1) Vandezande Inc. is considering the acquisition of a new machine that costs $370,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are (Ignore income taxes.):

	Incremental Net Operating Income			Incremental Net Cash Flows
Year 1	$	54,000			$	128,000
Year 2	$	31,000			$	105,000
Year 3	$	52,000			$	126,000
Year 4	$	49,000			$	123,000
Year 5	$	48,000			$	122,000

Use Excel to Show calculations.

Assume cash flows occur uniformly throughout a year except for the initial investment.

If the discount rate is 10%, the net present value of the investment is:

A) $370,000

B) $457,479

C) $234,000

D) None of the above

Answer 1

Years	Cash Inflow	x	PU Factor	=	Present Value
1	128,000	x	0.909	=	116,352.00
2	105,000	x	0.826	=	86,730.00
3	126,000	x	0.751	=	94,626.00
4	123,000	x	0.683	=	84,009.00
5	122,000	x	0.621	=	75,762.00
Total				=	457,479
Net Present Value				=	$457,479

the net present value of the investment is $457,479

Correct option is B.

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