1) A company is considering the purchase of new equipment for $90,000. The projected annual net...
A company is considering the purchase of new equipment for $90,000. The projected annual net cash flows are $35,500. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 8% return on investment. The present value of an annuity of $1 for various periods follows:
|Period||Present value of an annuity of $1 at 8%|
What is the net present value of this machine assuming all cash flows occur at year-end?
The following present value factors are provided for use in this problem.
|Periods||Present Value |
of $1 at 8%
|Present Value of an |
Annuity of $1 at 8%
Xavier Co. wants to purchase a machine for $36,900 with a four year life and a $1,200 salvage value. Xavier requires an 8% return on investment. The expected year-end net cash flows are $11,900 in each of the four years. What is the machine's net present value?
A company is considering the purchase of a new machine for $57,000. Management predicts that the machine can produce sales of $16,900 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling $7,100 per year including depreciation of $4,900 per year. Income tax expense is $3,920 per year based on a tax rate of 40%. What is the payback period for the new machine?