Davies Inc.would like to purchase a new machine for $300,000.The machine will have a life of four years with no salvage value,and is expected to generate annual cash revenue of $180,000.Annual cash expenses,excluding depreciation,will total $20,000.The company uses the straight-line depreciation method,has a tax rate of 30 percent,and requires a 12 percent rate of return.
(1)Find the net present value of this investment using the following factors.

(2)Should the company purchase the machine? Explain.

Question

Davies Inc.would like to purchase a new machine for $300,000.The machine will have a life of four years with no salvage value,and is expected to generate annual cash revenue of $180,000.Annual cash expenses,excluding depreciation,will total $20,000.The company uses the straight-line depreciation method,has a tax rate of 30 percent,and requires a 12 percent rate of return.
(1)Find the net present value of this investment using the following factors.
  
(2)Should the company purchase the machine? Explain.

Quizplus · Accepted Answer

The Answer of Davies Inc.would like to purchase a new machine for $300,000.The machine will have a life of four years with no salvage value,and is expected to generate annual cash revenue of $180,000.Annual cash expenses,excluding depreciation,will total $20,000.The company uses the straight-line depreciation method,has a tax rate of 30 percent,and requires a 12 percent rate of return.
(1)Find the net present value of this investment using the following factors.
  
(2)Should the company purchase the machine? Explain.