BUS3301 Written week 7

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Nov 24, 2024

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University of the People BUS3301 Financial accounting Written Assignment Week 7
Michaels, Inc., purchased a machine for $75,000. The machine has a useful life of five years and no salvage value. Straight-line depreciation is to be used. The machine is expected to generate cash flow from operations, net of income taxes, of $25,000 in each of the five years. Michaels' expected rate of return is 10%. Information on present value factors is as follows: Period Present Value of $1 at 10% Present value of ordinary annuity of $1 at 10% 1 0.90909 0.90909 2 0.82645 1.73554 3 0.75132 2.48685 4 0.68301 3.16986 5 0.62092 3.79079 Time Today 0 Year 1 Year 2 Year 3 Year 4 Year 5 Purchase (75,000) Total Cash flow Pv Factor (r = 10%) (75,000) *1.000 25,000 *0.9090 9 25,000 *0.8264 5 25,000 * 0.7513 2 25,000 *0.6830 1 25,000 *0.6209 2 Value $(75,000 )+ 22,727. 25 20,661. 25 18,783 17,075. 25 15,523 What would be the net present value? NPV = ($75,000) + 22,727.25 + 20,661.25 + 18,783 + 17,075.25 + 15,523= -75,000 + 94,769.75 NPV = $ 19,769.75
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