Adams Company can aquire a $750,000 machine now that will benefit the firm over

Question

Adams Company can aquire a $750,000 machine now that will benefit the firm over the next 8 years. Annual savings in cash operating costs are expected to total $140,000. If the hurdle rate is 10%, the investment's net present value is:

A. $(226,960)

B. $(3,100)

C. $65,150

D. $370,000

E. some other amount

A new machine that costs $172,100 is expected to save annual cash operating costs of $40,000 over each of the next nine years. The machine's internal rate of return is:

A. approx 14%

B. approx 16%

C. approx 18%

D. approx 20%

E. some other figure not noted above

Paulsen is considering the acquistion of a $217,750 machine that is expected to produce annual savings in cash operating costs of $50,000 over the next 6 years. If Paulsen uses the internal rate of return (IRR) to evaluate new investments and the firm has a hurdle rate of 12% which of the following statements is correct?

A. The machine's IRR is less than 4% and the machine should not be acquired

B. The machine's IRR is approx 10% and the machine should not be aquired

C. The machine's IRR is approx 10% and the machine should be aquired

D. The machine's IRR is approx 12% and the machine shold be aquired

E. All of the preceding statements are false

Explanation / Answer

1.)) B. $(3,100)

2.)) C. approx 18%

3.)) B. The machine's IRR is approx 10% and the machine should not be aquired

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