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Question

165) Icy Peaks Sports makes snowboards. The company wants to add a new machine that would cost $80,000 and have a useful life of 5 years and no residual value. The company expects the machine will generate $24,000 annual cash inflows for 5 years. The discount rate is 10%. What is the net present value of the investment?

166) Louise owns a golf course and wants to add some computers to the lounge. The computers would cost $14,000 and would have a 3 year life and no residual value. Louise expects the computers to generate $4,000 annual cash inflows for 3 years. The discount rate is 8%. What is the net present value of the investment?

167) Spinelli Company is deciding whether to automate one phase of its production process. The equipment has a six year life and will cost $450,000. The interest rate is 12%. Net cash inflows per year:

Year 1 |
$ 85,000 |

Year 2 |
$ 70,000 |

Year 3 |
$ 95,000 |

Year 4 |
$ 75,000 |

Year 5 |
$ 85,000 |

Year 6 |
$ 96,000 |

a.What is the present value of the net inflow for year 1?

b.What is the present value of the net inflow for year 5?

168) (Present value tables are needed.) Georgia Peach Farms is upgrading its fruit washing/separating machine. Georgia has narrowed the decision down to two machines: Machine A and Machine B.Pertinent information for each machine follows:

__Machine A____Machine B__

Investment$450,000$650,000

Useful life (years)1010

Estimated annual net cash inflows for useful life$75,000$120,000

Residual value$25,000$35,000

Depreciation methodstraight-linestraight-line

Required rate of return10%12%

Required:

a.Calculate the net present value of Machine A.

b.Calculate the net present value of Machine B.

c.Using the net present value method, which machine should Georgia select if it can select only one investment?