Explanation The net present value of the automated machine will be calculated as under − The present value of cash outflows will be calculated as under − Given, Cost of machine = $ 120,000 Replacement parts cost in year 3 = $ 9,000 PVIF @ 20 % for 3 years = 0.5787 (refer to the table attached) Total Present value of cash out flows Cost of machine 120,000 Present value of replacement of parts Replacement parts cost - 3rd year 9,000 PVIF @ 20 % for year 3 0.5787 5,208 Total Present value of cash out flows 125,208 The total present value of cash outflows = $ 125,208. The Now, the present value of cash inflows will be calculated as − Given, Annual net savings from year 1 to 5 = $ 32,000 Salvage value of new machine at the year of year 5 = $ 7,500 PVAF @ 20 % for 5 years = 2.9906 (refer to the table attached) PVIF @ 20 % for 5 years = 0.4019 (refer to the table attached) Total present value of Cash Inflows Year Annual net savings (1) PVIF @ 16 % (2) Present value of cash inflow (1) X (2) 1 to 5 32,000 2.9906 95,699 5 7,500 0.4019 3,014 Total present value of Cash Inflows 98,713 The total present value of cash inflows = $ 98,713...

Loose Leaf For Introduction To Managerial Accounting

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ISBN: 9781260190175

Author: Brewer Professor, Peter C.; Garrison, Ray H; Noreen, Eric

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Chapter 12, Problem 22P

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The new machine’s net present value.

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Chapter 12 Solutions

Loose Leaf For Introduction To Managerial Accounting

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The new machine’s net present value .

Solution Summary: The author defines annual cost savings as the cost saving earned during the year, if an old equipment or machinery is replaced by another.

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To compute:

The new machine’s net present value.

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Chapter 12 Solutions

The new machine’s net present value .

Solution Summary: The author defines annual cost savings as the cost saving earned during the year, if an old equipment or machinery is replaced by another.

Concept explainers

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To compute: The new machine’s net present value.

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Chapter 12 Solutions

To compute:

The new machine’s net present value.