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 $30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000 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

$118,855

$583,676

$629,788

$705,391

$1,918,855

Business   Accounting   
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Homework Answers

Answer #1

Answer is $118855.

Calculations given below:-

Depreciation = (Cost - salvage)/ life = (1800000-30000)/3= $590000

Particulars Years Outflow/ Inflow Discounting factor Value
Asset Purchase 0 -1800000 1    -18,00,000.00
Income After adjusting Depreciation 1 790000 0.8929 705391
Income After adjusting Depreciation 2 790000 0.7972 629788
Income After adjusting Depreciation 3 790000 0.7118 562322
Salvage value 3 30000 0.7118 21354
Total $ 118855
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