A Company Can Buy a Machine That Is Expected to Have

question 144

Essay

A company can buy a machine that is expected to have a three-year life and a $30,000 salvage value. The machine will cost $1,800,000 and is expected to produce a $200,000 after-tax net income to be received at the end of each year. If a table of present values of 1 at 12% shows values of 0.8929 for one year, 0.7972 for two years, and 0.7118 for three years, what is the net present value of the cash flows from the investment, discounted at 12%?

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Definitions:

Gross Wages

The total amount of money earned by an employee before any deductions or taxes are taken out.

Federal Withholding

The practice of an employer withholding income tax from an employee's paycheck and directly paying it to the government.

Social Security Tax

A mandatory contribution to the U.S. Social Security system, levied on both employers and employees, to fund retirement, disability, and survivorship benefits.

Medicare Tax

A federal tax paid by employees and employers to fund the Medicare program, which provides health insurance for individuals who are 65 years of age and over, or who meet other specific criteria.