Baldock Inc. is considering the acquisition of a new machine that costs $420,000
ID: 2473047 • Letter: B
Question
Baldock Inc. is considering the acquisition of a new machine that costs $420,000 and has a useful life of 5 years with no salvage value. The incremental net operating income and incremental net cash flows that would be produced by the machine are: Assume cash flows occur uniformly throughout a year except for the initial investment. Click here to view Exhibit 13B-1 and Exhibit 13B-2. to determine the appropriate discount factor(s) using table. If the discount rate is 12%, the net present value of the investment is closest to: $539,365 $330,000 $119,365 $420,000Explanation / Answer
The Net Present Value of the Investment is closed to $119,365
Here is the calculation of Net Present Value
Calculation of Net Present Value
Year
Cash Flows
PV factor @ 12%
Present Value
(Cash Flows x PV factor)
0
($420,000)
1.000
($420,000)
1
$145,000
0.893
$129,464
2
$151,000
0.797
$120,376
3
$162,000
0.712
$115,308
4
$125,000
0.636
$79,440
5
$167,000
0.567
$94,760
Net Present Value
$119,349
Year
Cash Flows
PV factor @ 12%
Present Value
(Cash Flows x PV factor)
0
($420,000)
1.000
($420,000)
1
$145,000
0.893
$129,464
2
$151,000
0.797
$120,376
3
$162,000
0.712
$115,308
4
$125,000
0.636
$79,440
5
$167,000
0.567
$94,760
Net Present Value
$119,349
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