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Managerial Accounting

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Dendri: Net Present Value and Decision

MGRACT-DVTH51

Dendri Inc. is considering a new x-ray machine. The current machine is fully depreciated and would be discarded as it is old technology and has no market value. The new machine costs \$180,000.

The new machine is expected to generate \$50,000 additional after-tax cash flows in each of the five years of its useful life, after which it will have no salvage value.

What is the net present value (rounded to a whole number) of the investment if the required rate of return is 11%? Further, what is the recommended decision?

Hint: Your amounts may be slightly different if you use tables instead of a calculator or Excel because the tables round.

A

(\$184,795), do not purchase

B

(\$4,795), do not purchase

C

\$4,795, recommend purchase

D

\$184,795, recommend purchase