1) (Ignore income taxes in this problem.) Joe Flubup is the president of Flubup,
ID: 2385042 • Letter: 1
Question
1)(Ignore income taxes in this problem.) Joe Flubup is the president of Flubup, Inc. He is considering buying a new machine that would cost $25,470. Joe has determined that the new machine promises an internal rate of return of 14%, but Joe has misplaced the paper which tells the annual cost savings promised by the new machine. He does remember that the machine has a projected life of 12 years. Based on these data, the annual cost savings are:
a. It is impossible to determine from the given data. b. $2,122.50 c. $4,500.00 d. $4,650.00
2)
(Ignore income taxes in this problem.) The management of Bischke Corporation is investigating an investment in equipment that would have a useful life of 8 years. The company uses a discount rate of 16% in its capital budgeting. Good estimates are available for the initial investment and the annual cash operating outflows, but not for the annual cash inflows and the salvage value of the equipment. The net present value of the initial investment and the annual cash outflows is -$238,486.
Ignoring any salvage value, to the nearest whole dollar how large would the annual cash inflow have to be to make the investment in the equipment financially attractive?
a. $238,486 b. $54,900 c. $38,158 d. $29,811
Explanation / Answer
1) Using financial calculator, we plug the number in as follows: PV = 25,470 Int = 14% N = 12 Compute PMT We get the PMT of $4500 Please post rest as separate post
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