Helicopter Gear is planning to expand its product line, which requires investmen

Question

Helicopter Gear is planning to expand its product line, which requires investment of $398,000 in special-purpose machinery. The machinery has a useful life of five years and no salvage value. The estimated annual results of offering the new products are as follows: Revenue Expenses (Including straight-1ine depreciation) Increase in net incone s 530,000 1503,200) $26,800 All revenue from the new products and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. 11% An annuity table shows that the present value of St receved Compute the net present value of this proposed investment, using a discount rate o annually for five years, discounted at 11%, is 3696) Multiple Choice $106,400 291,600

Explanation / Answer

Answer :($4,746)

Note :

Net present value

= Present value of increase in net income (excluding depreciation) - Initial investment

= $393,254 - $398,000 = ($4,746)

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