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Compute the net present value of potential investment

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Reference no: EM132052709

A new operating system for an existing machine is expected to cost $600,000 and have a useful life of six years. The system yields an incremental after-tax income of $195,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $22,600.

A machine costs $540,000, has a $39,800 salvage value, is expected to last eight years, and will generate an after-tax income of $88,000 per year after straight-line depreciation.

Assume the company requires a 12% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1 and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Reference no: EM132052709

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