The management of Mashiah Corporation is considering the purchase of a machine t
ID: 2473986 • Letter: T
Question
The management of Mashiah Corporation is considering the purchase of a machine that would cost $290,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $102,000 per year. The company requires a minimum pretax return of 13% on all investment projects. Click here to view Exhibit 11B-2 to determine the appropriate discount factor(s) using tables. The present value of the annual cost savings of $102,000 is closest to: $849,012 $612,000 $195,872 $407,796
Explanation / Answer
Year
Annual Saving
PV @ 13%
PV of annual saving
1
1,02,000.00
0.885
90,265.49
2
1,02,000.00
0.783
79,880.96
3
1,02,000.00
0.693
70,691.12
4
1,02,000.00
0.613
62,558.51
5
1,02,000.00
0.543
55,361.51
6
1,02,000.00
0.480
48,992.49
Total
4,07,750.08
Year
Annual Saving
PV @ 13%
PV of annual saving
1
1,02,000.00
0.885
90,265.49
2
1,02,000.00
0.783
79,880.96
3
1,02,000.00
0.693
70,691.12
4
1,02,000.00
0.613
62,558.51
5
1,02,000.00
0.543
55,361.51
6
1,02,000.00
0.480
48,992.49
Total
4,07,750.08
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