Edgar Company Is Considering the Purchase of New Equipment Costing

question 112

Multiple Choice

Edgar Company is considering the purchase of new equipment costing $80,000.The projected annual after-tax net income from the equipment is $10,200,after deducting $20,000 for depreciation.The revenue is to be received at the end of each year.The machine has a useful life of 4 years and no salvage value.Edgar requires a 10% return on its investments.The present value of an annuity of 1 and present value of an annuity for different periods is presented below.Compute the net present value of the machine. $$\begin{array} { c c c } & \text { Present Value } & \text { Present Value of ar } \\\text { Periods } & \text { of } 1 \text { at } 10 \% & \text { Arruity of } 1 \text { at } 10 \% \\1 \ldots \ldots \ldots \ldots \ldots . & 0.9091 & 0.9091 \\2 \ldots \ldots \ldots \ldots \ldots . & 0.8264 & 1.7355 \\3 \ldots \ldots \ldots \ldots \ldots . & 0.7513 & 2.4869 \\4 \ldots \ldots \ldots \ldots \ldots & 0.6830 & 3.1699\end{array}$$

• A)$(15,731).
• B)$(4,896).
• C)$15,731.
• D)$4,896.
• E)$32,334.

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Definitions:

Face Value

Face value is the nominal value or dollar value printed on a security or a bond, representing the amount to be repaid at maturity.

Semi-Annual Coupon

A type of bond payment made twice a year to bondholders, representing interest payments on the bond's face value.

Yield To Maturity

The total expected return on a bond if held until its maturity date, taking into account both the interest payments and any gain or loss if the bond was purchased at a discount or premium.

Newspaper

A printed publication consisting of news articles, editorials, and advertisements, typically published daily or weekly.