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A new operating system for an existing machine is expected to cost $720,000 and have a...

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Accounting

  1. A new operating system for an existing machine is expected tocost $720,000 and have a useful life of six years. The systemyields an incremental after-tax income of $275,000 each year afterdeducting its straight-line depreciation. The predicted salvagevalue of the system is $21,800.
  2. A machine costs $510,000, has a $33,800 salvage value, isexpected to last eight years, and will generate an after-tax incomeof $66,000 per year after straight-line depreciation.

Assume the company requires a 10% rate of return on itsinvestments. Compute the net present value of each potentialinvestment. (PV of $1, FV of $1, PVA of $1 and FVA of $1)(Use appropriate factor(s) from the tablesprovided.)

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CALCULATION OF THE DEPRECIATION FOR PROJECT A Purchase Cost of Building 720000 Less Salvage Value 21800 Net Value for Depreciation 698200 Usefule life of the Assets In Years 6 Years Depreciation per year Value for Depreciation 6 years 116367 CALCULATION OF THE NET CASH FLOW PER YEAR FROM PROJECT A Net    See Answer
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