/pid498121.dt content-rid-11072155-1/courses/201 801_ACCT2813Jwright group/B18d%
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/pid498121.dt content-rid-11072155-1/courses/201 801_ACCT2813Jwright group/B18d%20Pract%201 ACCT 2813 Online Blackboard Practice 13 1. Bugs B. Corporation is considering the purchase of a machine that would cost $345,000 and would last for 5 years At the end of 5 years, the machine would have a salvage value of $50,000 By reducing labor and other operating costs, the machine would provide annual cost savings of $76,000 The company requires a minimum pretax return of 12% on all investment projects. what is the project's net present value? The Elmer F. Company has decided to buy a machine costing $14,750 Estimated cash savings from using the new machine amount to $4,500 per year. The machine will have no salvage value at the end of its useful life of five years. If the company's required rate of return is 12%, what is the machine's internal rate of returm 2. 3. The Daffy Company has just purchased a piece of equipment at a cost of $128,000. This equipment will reduce operating costs by $46,000 each year for the next eight years. What is the payback period?Explanation / Answer
Q1. Annual saving of cost 76000 Annuity factor for 5 yrs at 12% 3.6048 Present value of cash inflwos 273964.8 Present value of salvage 28,370 (50000*0.5674) Total present value of inflows 302,335 Less: Investment 345000 Net present value -42,665 Q2. Annual savings 4500 Annuity at 16% 3.274 Present value of inflowws 14733 Initial investment 14750 NPV -17 IRR 16% Q3. Payback period: Initial Investmennt / Annual savings 128000/46000 =2.78 years
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