Question

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

A company can buy a machine that is expected to have a three-year life and a $34,000 salvage value. The machine will cost $1,816,000 and is expected to produce a $204,000 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%? Multiple Choice $124,918 $592,218 $636,166 $712,534 Incorrect $1,940,918

Homework Answers

Answer #1
After-tax net income 204000
Add:Depreciation expense 594000 =(1816000-34000)/3
Annual net cash flows 798000
Year 0 Year 1 Year 2 Year 3
Investment cost -1816000
Annual net cash flows 798000 798000 798000
Salvage value 34000
Total cash flows -1816000 798000 798000 832000
X PV factor 1 0.8929 0.7972 0.7118
Present value of Total cash flows -1816000 712534 636166 592218
Net present value 124918
$124,918 is correct option
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