3Problem 24-08 Question 3 of 3 Check My Work (No more tries available) eBook Pro

Question

3Problem 24-08 Question 3 of 3 Check My Work (No more tries available) eBook Problem 24-8 Capital Investment Decision: Comprehensive Express Corporation wants to buy a new stamping machine. The machine will provide the company with a new product line: pressed rubber food trays for kitchens. Two machines are being considered; the data for each machine follows. ETZ LKR Machine $350,000 $370,000 $39,204 $48,642 $64,404$75,642 $28,000 $40,000 10 Machine Cost of machine Net income Annual net cash inflows Residual value Estimated useful life in years The company's minimum rate of return is 16 percent, and the maximum allowable payback period is 5.0 years. Use Table 1 ad Table 2. 1. Compute the net present value for each machine. Round your calculations except present value factors and answers to the nearest dollar. Use the minus sign to enter a negative net present value. 10 Net Present Value ETZ machine 224181 LKR machine 4658

Explanation / Answer

1. Net present value of ETZ machine:

   year cash flow PVAF(16%,10years)   PVF(16%,10year) Present value

0 ($350000) - 1 350000

1-10 $64404 4.833 - 311265

10 $28000 - 0.227 6356

Net present value = Present value of cash inflow- present value of cash outflow

= 317621 - 350000

= -$32379

Note: purchase price is $350000 as initial investment

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