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Managerial Accounting

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Indiana Co. and Computing NPV

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Indiana Co. wants to buy a new machine at a cost of \$280,000. The investment is expected to generate \$102,000 in net after-tax annual cash flows for a period of five years. The required rate of return is 11%.

The old machine can be sold for \$25,000 (its book value). The new machine is expected to have $40,000 salvage value at the end of the five-year life.

What is the net present value of the investment (rounded to the nearest dollar)?

Use Excel or a financial calculator because the table factors may result in slightly different amounts due to rounding in the tables.