(Ignore income taxes in this problem. ) Almendarez Corporation is considering th
ID: 2345100 • Letter: #
Question
(Ignore income taxes in this problem. ) Almendarez Corporation is considering the purchase of a machine that would cost $320,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $51,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $72,000. The company requires a minimum pretax return of 18% on all investment projects. The present value of the annual cost savings of $72,000 is closest to: $874,298 $504,000 $22,608 $274,464 The present value of a given future cash flow will increase as the discount rate decreases. True False (Ignore income taxes in this problem. ) Paragas, Inc. , is considering the purchase of a machine that would cost $370,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $52,000. The machine would reduce labor and other costs by $96,000 per year. Additional working capital of $4,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 19% on all investment projects. The combined present value of the working capital needed at the beginning of the project and the working capital released at the end of the project is closest to: -$3,004 $0 -$12,080 $11,816Explanation / Answer
8. 72000(1-(1/1.18)^7)/(1-(1/1.18)) + 51000/1.18^7 - 320000 = $ 19837 Closest to C) $22,608 9. A) TRUE 10. 4000/1.19^8 - 4000 = -$3,005 Closest to A) -$3,004
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