ignore income taxes in this problem) Clairmont Corporation is consadering the pu

Question

ignore income taxes in this problem) Clairmont Corporation is consadering the purchase of a machine that would cost $50000 and would last for s years Al the end of 5 yoars, the would have a salvage value of $18,000 By reducing labor and other operating costs, the machine would provide annial cost savings of $37,000. The company requres a pretax return of 12% on all investment projects Click here to view Exthitit 133-2 to determine the appropriate discount factorts) using tables The present value of the annual cost savings of $37,000 is closest to O $185,000 O $20.979 $133,385 O $235,070

Explanation / Answer

Annual cost savings - $37,000.

Present value of annual cost savings = $37,000 × Present value for ordinary annuity for 5 years at 12%.

= $37,000 × ((1-(1+r)-n)/r)

= $37,000 × ((1-(1+0.12)-5)/0.12)

= $133,376.71

The closest answer is $133,385

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