Chapter 08 Inclass quiz_SOLN

# Chapter 08 Inclass - PVA = 6,000 x factor 6 8 PVA = 6,000 x 4.6229 = 27,737 PV = FV x factor PV = 2,000 x factor 6 8 PV = 2,000 x.6302 = 1,260 Net

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Acc 200P Name: ________________________ Lab Section #_________________ Chapter 8 SOLUTION Present Value of an Annuity (n) period 8 % 6 4.6229 Present Value of a Lump Sum (n) period 8 % 6 0.6302 A. Needham Inc. is evaluating the purchase of a new machine with a cost of \$20,000. The estimated annual cost flows are \$6,000 for each of the next six years. The machine is expected to have a salvage value of \$2,000 at the end of the sixth year. In addition, the machine will be depreciated annually over a six year life. What is the machine’s net present value if the cost of capital is 8%? Ignore tax effects. Answer: _ \$8,997 _______ PV of Cash Outflows: Initial Investment \$ (20,000) PV of Cash Inflows: PVA = R x factor

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Unformatted text preview: PVA = 6,000 x factor 6, 8% PVA = 6,000 x 4.6229 = 27,737 PV = FV x factor PV = 2,000 x factor 6, 8% PV = 2,000 x .6302 = 1,260 Net Present Value \$ 8,997 B. What if the company has a tax rate of 25%. Taking into account income taxes, calculate the new net present value. Answer: __ \$5,599 (or \$5,600 depending on the rounding) PV of Cash Outflows: Initial Investment \$ (20,000) PV of Cash Inflows: PVA = R x factor PVA = (6,000 x .75) x factor 6, 8% PVA = 4,500 x 4.6229 = 20,803 (depreciation tax shield) PVA = [20,000/6 x .25] x factor 6, 8% PVA = 833 x 4.6229 3,851 PV = FV x factor PV = (2,000 x .75) x factor 6, 8% PV = 1,500 x .6302 = 945 Net Present Value \$ 5,599...
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## This note was uploaded on 11/22/2010 for the course ACC 200 taught by Professor Buckless during the Spring '08 term at N.C. State.

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Chapter 08 Inclass - PVA = 6,000 x factor 6 8 PVA = 6,000 x 4.6229 = 27,737 PV = FV x factor PV = 2,000 x factor 6 8 PV = 2,000 x.6302 = 1,260 Net

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