Question - Compute the net present value of each potential investment.
Assume the company requires a 12% rate of return on its investments. (FV of $1, PV of $1, FVA of $1and PVA of $1) (Use appropriate factor(s) from the tables provided.)
a. A new operating system for an existing machine is expected to cost $770,000 and have a useful life of six years. The system yields an incremental after-tax income of $230,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $12,400.
b. A machine costs $520,000, has a $23,000 salvage value, is expected to last eight years, and will generate an after-tax income of $84,000 per year after straight-line depreciation.