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An existing machine can produce a cash inflow of $5,500 a year for 2 years...

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Finance

An existing machine can produce a cash inflow of $5,500 a year for 2 years and then will give up the ghost. The current salvage value of the machine is $5,000 and next years salvage value is $4,400. A new machine, with a life of five years, can produce an equivalent annual cash inflow of $4,000. What is the NPV achieved if the firm uses the existing machine for one more year and then keep on replacing with new machines over an infinite period of time? The opportunity cost of capital is 10%.

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Answer is B

11. An existing machine can produce a cash inflow of $5,500 a year for 2 years and then will give up the ghost. The current salvage value of the machine is $5,000 and next year's salvage value is $4,400. A new machine, with a life of five years, can produce an equivalent annual cash inflow of $4,000. What is the NPV achieved if the firm uses the existing machine for one more year and then keep on replacing with new machines over an infinite period of time? The opportunity cost of capital is 10%. (a) $12,636 $45,364 (c) $46,264 $49,000 (e) $49,900 (6) (d)

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