18. lgnore income taxes in this problem.) Meharg Corporation is considering the

Question

18. lgnore income taxes in this problem.) Meharg Corporation is considering the purchase of a machine that would cost $120,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $25.000. By reducing labor and other operating costs, the machine would provide annual cost savings of $30,000. The company requires a minimum pretax return of 10% on all investment projects. The present value of the annual cost savings of $30.000 is closest to O $183.163 O $113.730 O $150,000 O $18.630

Explanation / Answer

Answer : $113,730 (ie option b)

Explanation :

Present Value of annual cost saving = Savings in $ * PVIFA 10 % , 5 years.

= $30,000 * 3.791 = $113,730

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