interpreting management reports capital investment analysis 507810

Interpreting Management Reports: Capital Investment Analysis C4. Angelo Bank is planning to replace some old ATM machines and has decided to use the York Machine. Anita Chavez, the controller, has prepared the analysis shown here. Shc has recommended purchasing the machine based on the positive net present value shown in the analysis. The York Machine has an estimated useful life of five years and an expected residual value of $35,000. Its purchase price is 5385,000. Two existing ATMs, each having a carrying value of 525,000, can be sold to a neighboring hank for a total of 550,000. Annual operating cash inflows are expected to increase in the following manner:

Year 1 $79,900 Year 2 76,600 Year 3 79,900 Year 4 83,200 Year 5 86,500

Angelo Bank uses straight-line depredation. The minimum race of is 12 percent. APO° Bank Capital Investment Analysis Net Present Value Method

Year 1 2 3 4 5 5 (residual value) Total present value Initial investment Less proceeds from the sale of existing ATM machines Net capital investment Net present value

Present Value Factor 0.909 0.826 0.751 0.683 0.621 0.621

..385,000

1. Analyze Chavez’s work. (Round to the ne.tt-,•,t made in her capital investment analysis? ) i% ould he your recommendation to bank 111.111.1..ic Machine?

Present Value S