Tlme remaining: 2:32:50 100.00 points Lucas Company is oonsidering investing in

Question

Tlme remaining: 2:32:50 100.00 points Lucas Company is oonsidering investing in a new machine. The machine costs $12,000 and has an economic life of four years. The machine will generate cash flows of $3,500 (cash revenues less cash expenses) each year. All cash flows, excapl for the initial investment, are realized al the end of the year. The inveslmen in the machine will be made at the beginning of the first year. Luces is nol subject to any laxes and, for financial accounting purposes, wil depreciate the machine using straight-line depreciation over four years. Lucas uses a percent cost of capital when evaluating investments. Use ExhbiLA a. Calculate the accounting income for the total over four years b. Compute the NPV of the cash flows over four years (Round PV factor to 3 decimal places. Negative amount should be indicated by a minus sign.) t value References Difficully 3 Hard Check my work 9:26 PM

Explanation / Answer

(a) calculation of Accounting Income for the Total of Four years Depreciation per year = cost of machine - Salvege value   / Life of the asset   =$12000 -$0   /4 =$3000 Year cash Inflow Depreciation Accounting Income 1 3500 3000 6500 2 3500 3000 6500 3 3500 3000 6500 4 3500 3000 6500 Total Accounting Income for four years 26000 (b) Computation of Net present Value Year cash Inflow PV factor at 8% Present value of cash flows 1 3500 0.92600 3241.00 2 3500 0.85700 2999.50 3 3500 0.79400 2779.00 4 3500 0.73500 2572.50 Total Present Value cash inflows 11592.00 Less: Investment 12000 Net Present value -408.00

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.