Saved Help Save & Exit The following present value factors are provided for use

Question

Saved Help Save & Exit The following present value factors are provided for use in this problem Present Value of$1 at 8% 0.9259 0.8573 0.7938 0.7350 Present Value of an Annuity of $1 at 8% 0.9259 1.7833 2.5771 3.3121 Periods 2 4 Xavier Co. wants to purchase a machine for $37200 with a four year life and a $1,200 salvage value. ×avier requires an 8% return on investment. The expected year-end net cash flows are $12.200 in each of the four years. What is the machine's net present value? Multiple Choice $4,090 $3,208 $41,290 $(4,090) $(3.208) :

Explanation / Answer

.1. Option (a) is correct.

Net Present Value = Present Value of cash inflows - Present value of cash outflows

Present value of cash inflows = Present value of annuity(8%,4 years) *$12200 + PV (8%,4 years)*$1200

= (3.3121 *$12200) + (0.7350 *$1200)

= $40408 + $882 = $41290

Present value of cash outflows = Initial investment = $37200

Net Present Value = $41290 - $37200 = $4090

2 Option (b) is correct

Accounting rate of return = Average net income / Average or initial investment

Accounting rate of return = $2900 /$61000 = 4.75%.

3. Option (b) is correct.

Net Present Value = Present Value of cash inflows - Present value of cash outflows

Present value of cash inflows = Present value of annuity(8%,3 years) *$17000 + PV (8%, 4year)*$21000

= (2.5771 *$17000) + (0.7350 *$21000)

= $43811 + $15435 = $59246

Present value of cash outflows = Initial investment = $48000

Net Present Value = $59246 - $48000 = $11246

4. Option (d) is correct.

Net Present Value = Present Value of cash inflows - Present value of cash outflows

Present value of cash inflows = Present value of annuity(12%,4 years) *$12400

= 3.0373 *$12400

= $37663

Present value of cash outflows = Initial investment = $42000

Net Present Value = $37663 - $42000 = ($4337)

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