Question

Carlin Company, which uses net present value to analyze investments, requires a 10% minimum rate of return. A staff assistant recently calculated a $500,000 machine's net present value to be $86,400, excluding the impact of straight-line depreciation. FV of 1 (i=10%, n=5): 1.611 FV of a series of $1 cash flows (i=10%, n=5): 6.105 PV of $1 (i=10%; n = 5): 0.621 PV of a series of $1 cash flows (i=10%, n=5): 3.791 If Carlin ignores income taxes and the machine is expected to have a five-year service life, the correct net present value of the machine would be:

Answer 1

Answer:

The correct net present value of the machine would be $86,400

Explanation:

For computing the net present value, the discount factor, yearly cash inflows are required.

In the question, it is already mentioned that Carlin ignores income taxes, and for depreciation, income tax is to be considered. So, automatically the depreciation is also not be considered in calculating part which means that the net present value would remain the same.