Answered: ,800. The machine has a useful life of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A company is considering the purchase of new equipment for $99,000. The projected annual net cash flows are $38,800. The machine has a useful life of 3 years and no salvage value. Management of the company requires a 8% return on investment. The present value of an annuity of $1 for various periods follows:

Period

Present value of an annuity of $1 at 8%

0.9259

1.7833

2.5771

What is the net present value of this machine (rounded to the nearest whole dollar) assuming all cash flows occur at year-end?

Multiple Choice

$33,000

$4,800

$991

$37,800

$97,414

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