Value Of The Machine After Five Years - 1238 Words

occur when using the new office machine. The net cash flow for the length of ownership of the machine is displayed in Figure 4.0. As you can see at year zero which is the total investment Figure 4.0 Year Net Cash Flow 0 $ (504,860.00) 1 $ 924,690.00 2 $ 993,719.55 3 $ 1,048,316.95 4 $ 1,108,505.39 5 $ 1,443,078.11 period the net cash flow is negative five hundred and four thousand, eight hundred and sixty dollars. As the company continues to use the machine over their five year period the net cash flow increases up to over one million dollars. The positive values of cash flow over each year implies that there is good potential for profit to be made from the investment in the new machine. The terminal cash flow will indicate the actual value of the machine after five years. This is important when it comes to the resale of the machine. The book value of the machine after five years is twenty five thousand dollars and the actual value is about nine thousand four hundred eighty nine dollars. There is a huge difference in the book value and the actual value. This will need to be considered when determining whether or not this is a good investment depending on the importance of the return on investment from the resale of the machine. The Net Present Value (NPV) is essential when determining whether to accept or reject the investment in a new office machine. The discount rate when NPV equals zero is about one hundred eighty nine point two zero sixShow MoreRelatedChapter 11 Problems Essay651 Words   |  3 Pages1. A new operating system for an existing machine is expected to cost $260,000 and have a useful life of five years. The system yields an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000. 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