19. The management of Penfold Corporation is considering the purchase of a machi

Question

19. The management of Penfold Corporation is considering the purchase of a machine that would cost $440,000 and have a life of 7 years. The machine would reduce labor and other costs by $102,000 per year. The company requires a minimurm return of 16% on all investment projects. The present value annuity of $1 for 7 periods at 16% is 4.039. The net present value of the proposed project is closest to: A. $ 96,949. B. $274,000. C $(28,022) $(79,196). 20. Eddie Corporation is considering the following three investment projects: Investment required Project CProject D $41,000 $47,560 Project E $85,000 $36,000 Present value of cash inflows $39,960 $92,650 Rank the projects according to the profitability index, from most profitable to least profitable. D, C, E. E, D, C. D. E, C, D.

Explanation / Answer

19. C. ($28,022)

Cost of machine = $4,40,000

Savings in cost = $1,02,000 per year

Present value of savings = 102000*4.039

= $4,11,978

NPV = $4,11,978 - $4,40,000

= $28,022

20. B. D,C,E

Project C Project D Project E Investment required $36,000 $41,000 $85,000 Present value of cash flows $39,960 $47,560 $92,650 PI 1.11 1.16 1.09

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.