Is There a way to have this answer complete, for the entire problem?
The York Machine has an estimated useful life of five years and expected to have a residueal value of $35,000. Its purchase prices is $385,000. Two exsisting atms each have a carrying value of $25,000, can be sold to a neighboring bank for $50,000. Annual operating cash inflows are expected to increase in the following manner:
Year 1 $79,900
Year 2 $76,600
Year 3 $79,900
Year 4 $83, 200
Year 5 $86,500
Angelo Bank uses straight line depreciation. THe minimum rate of return is 12 percent.
Year Net Cash Inflows Present Value Factor Present Value
1 $85,0000 0.909 $77,265
2 80,0000 0.826 66,080
3 85,000 0.751 63,835
4 90,000 0.683 61,470
5 95,000 0.621 58,995
5(Residual Value) 35,000 0.621 21,735
Total present value $349,380
Intial Investment $385,000
Less proceed from the sale of ATM machines $50,000
Net capital Incestment 335,000
Net present value $14,380
1. Analyze Chavez's work, (round to the nearest dollar) What changes need to be made in her capital invesment analysis?
2. What would your recommendation to bank management about the purchase of the york machine?