A New Asset Is Expected to Provide Service Over the Next

Multiple Choice

A new asset is expected to provide service over the next four years. It will cost $500,000, generates annual cash inflows of $150,000, and requires cash operating expenses of $30,000 each year. In addition, a $10,000 overhaul will be needed in year 3.

If the company requires a 10% rate of return, the net present value of this machine would be:

A) $(127,110) , and the machine meets the company's rate-of-return requirement.
B) $(127,110) , and the machine does not meet the company's rate-of-return requirement.
C) $(129,600) , and the machine does not meet the company's rate-of-return requirement.
D) $(151,700) , and the machine meets the company's rate-of-return requirement.
E) None of the answers is correct.