A company is considering the purchase of new equipment for $45,000.The projected after-tax net income is $3,000 after deducting $15,000 of depreciation.The machine has a useful life of 3 years and no salvage value.Management of the company requires a 12% return on investment.The present value of an annuity of 1 for various periods follows:
$$\begin{array} { c c }
\text { Period } & \text { Present value of and annuity of } 1 \text { at } 12 \% \
1 \ldots \ldots & 0.8929 \
2 \ldots \ldots & 1.6901 \
3 \ldots \ldots &2.4018
\end{array}$$ What is the net present value of this machine assuming all cash flows occur at year-end?

Question

A company is considering the purchase of new equipment for $45,000.The projected after-tax net income is $3,000 after deducting $15,000 of depreciation.The machine has a useful life of 3 years and no salvage value.Management of the company requires a 12% return on investment.The present value of an annuity of 1 for various periods follows:
 $$\begin{array} { c c } 
\text { Period } & \text { Present value of and annuity of } 1 \text { at } 12 \% \
1 \ldots \ldots & 0.8929 \
2 \ldots \ldots & 1.6901 \
3 \ldots \ldots &2.4018
\end{array}$$ What is the net present value of this machine assuming all cash flows occur at year-end?

Quizplus · Accepted Answer

The Answer of A company is considering the purchase of new equipment for $45,000.The projected after-tax net income is $3,000 after deducting $15,000 of depreciation.The machine has a useful life of 3 years and no salvage value.Management of the company requires a 12% return on investment.The present value of an annuity of 1 for various periods follows:
 $$\begin{array} { c c } 
\text { Period } & \text { Present value of and annuity of } 1 \text { at } 12 \% \
1 \ldots \ldots & 0.8929 \
2 \ldots \ldots & 1.6901 \
3 \ldots \ldots &2.4018
\end{array}$$ What is the net present value of this machine assuming all cash flows occur at year-end?

A Company Is Considering the Purchase of New Equipment for $45,000.The