03 7&8 instructions I help Question 9 (of 12) Save & Exit Submit Time remaining:
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03 7&8 instructions I help Question 9 (of 12) Save & Exit Submit Time remaining: 0:48:47 9 (Ignore income taxes in this problem.) The management of Mashiah Corporation is considering the purchase of a machine that would cost 305,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $105,000 per year The company requires a minimum pretax return of 7% on all investment projects. Click here to view Exhibit 88-1 and Exhibit 88-2 to determine the appropriate discount factor(s) using tables. The net present value of the proposed project is closest to O$232.402 O $337000 O $195.535 O $322,985Explanation / Answer
Ans :
Present value annuity factor ( 7%, 6 years) = 4.767 { 4.766 = (1/(1.07) + 1/(1.07)2 + 1/(1.07)3 + 1/(1.07)4 +1/(1.07)5 +1/(1.07)6 +1/(1.07)7 }
Annual savings = $ 105,000
Present value of cash inflows = present value factor * annual savings
= $ 105,000 * 4.767
= $ 500,487
Present value of cash outflows = $ 305,000
Net Present value = Present value of cah inflows - Present value of cash outflows
= $ 500,487 - $ 305,000
= $ 195,487
Option C ( $ 195,535 ) approximately
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