A machine is under consideration that would cost $30,000, save $6,000 per year i

Question

A machine is under consideration that would cost $30,000, save $6,000 per year in cash operating costs, and have an expected life of 15 years with zero salvage value. The payback period on the machine is: 2 years; 7.5 years; 5 years; 0.2 years. Refer to the data in question (7) above. The simple rate of return is approximately: 20%; 13.3%; 18%; 10%. You have recently won $100,000 in a contest You have been given the option of receiving $100,000 today or receiving $12.000 at the end of each year for the next 20 years. If you can earn 8% on investment, which of these two option would you select? (Note: The net present value method assumes that any cash flows are reinvested at a rate equal to the discount rate. Therefore, to answer this question you can compare the net present values of the cash flows under the two alternatives using 8% as the discount rate.)If you can earn 12% on investments, which of these two options would you select?

Explanation / Answer

a)

fo 8%

All today

b)

for 12 %

$12,000 per year

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