MC Qu. 104 Butler Corporation is considering... Butler Corporation is considerin
ID: 2579338 • Letter: M
Question
MC Qu. 104 Butler Corporation is considering... Butler Corporation is considering the purchase of new equipment costing $57,000. The projected annual after-tax net income equipment is $2100, after deducting $19,00 useful life of 3 years and no salvage value. Butler requir periods follows: from the O for depreciation. The revenue is to be received at the end of each year. The machine has a es a 8% return on its investments. The present value of an annuity of $1 for different 3:04 Periods 1 2 3 4 8% 0.9259 1.7833 2.5771 3.3121 What is the net present value of the machine? Multiple Choice $(2623)Explanation / Answer
Net cash flows = Net Income after tax + Depreciation
= $2,100 + $19,00
= $ 21,100
Since the project is having equal cash flows for 3 years, annuity factor for 3 years will be used
So, Present value of inflows
= Yearly cash flows x Annuity factor
= $21,100 x 2.5771
= $ 54,376.81
So, Net Present Value
= Present Value of inflows – Present value of outflows
= $ 54,376.81 - $57,000
= $(2,623)
So, option A is the correct option
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