Daniels Corporation is considering the purchase of new equipment costing $30,000.The projected annual after-tax net income from the equipment is $1,200,after deducting $10,000 for depreciation.The revenue is to be received at the end of each year.The machine has a useful life of three years and no salvage value.Daniels requires a 12% return on its investments.The factors for the present value of $1 for different periods follow:
$$\begin{array} { l r }
\underline{\text { Periods }} & \underline{12 \text { Percent }} \
1 & 0.8929 \
2 & 0.7972 \
3 & 0.7118 \
4 & 0.6355
\end{array}$$
What is the net present value of the machine?
A) $24,018
B) $(3,100)
C) $30,000
D) $26,900
E) $(29,520)

Question

Daniels Corporation is considering the purchase of new equipment costing $30,000.The projected annual after-tax net income from the equipment is $1,200,after deducting $10,000 for depreciation.The revenue is to be received at the end of each year.The machine has a useful life of three years and no salvage value.Daniels requires a 12% return on its investments.The factors for the present value of $1 for different periods follow:
$$\begin{array} { l r } 
\underline{\text { Periods }} & \underline{12 \text { Percent }} \
1 & 0.8929 \
2 & 0.7972 \
3 & 0.7118 \
4 & 0.6355
\end{array}$$
What is the net present value of the machine?
A) $24,018
B) $(3,100)
C) $30,000
D) $26,900
E) $(29,520)

Quizplus · Accepted Answer

(.8929+.7972+.7118)($11,200) = $26,900 - $30,000 = ($3,100)

Daniels Corporation Is Considering the Purchase of New Equipment Costing