Choice "B" is correct. Net present value equals the present value of the cash inflows minus the original cost of the asset. The question already provides after-tax cash flow information, so there is no need to calculate depreciation expense on the asset, as its effects are already included in the facts. The question asks the candidate to use knowledge of the formula and determine what the cost of the machine was. In real life, this wouldn't happen (i.e., the cost would be known); however, it is reasonable that the same calculations might have to be performed (e.g., a company may wish to determine how much they should spend on a machine if they have a 12% minimum rate of return and desire an annual after-tax cash flow increase of $110,000). In this case, the present value of the cash inflows is $110,000 × 4.564$502,040, because the cash inflows are forecasted to be earned in each year. $502,040 − cost$12,000; therefore, the cost of the machine is $490,040.Choice "c" is incorrect. Net present value equals the present value of the cash inflows minus the original cost of the asset.Choice "a" is incorrect. Net present value equals the present value of the cash inflows minus the original cost of the asset. The net present value must be subtracted from the present value of the cash flows in order to determine the cost of the machine.Choice "d" is incorrect. Net present value equals the present value of the cash inflows minus the original cost of the asset. The net present value must be subtracted from the present value of the cash flows in order to determine the cost of the machine.