(Ignore income taxes in this problem.) The management of Mashiah Corporation is
ID: 2598303 • Letter: #
Question
(Ignore income taxes in this problem.) The management of Mashiah Corporation is considering the purchase of a machine that would cost $330,000, would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $110,000 per year. The company requires a minimum pretax return of 12% on all investment projects. Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables. The present value of the annual cost savings of $110,000 is closest to: $837,766 $550,000 $184,626 $396,550
Explanation / Answer
present value of the annual cost savings=$110,000*Present value of annuity factor(12%,5)
=$110,000*3.605
=$396550
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