The management of Melchiori Corporation is considering the purchase of a machine
ID: 2490106 • Letter: T
Question
The management of Melchiori Corporation is considering the purchase of a machine that would cost $480,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $128,000 per year. The company requires a minimum pretax return of 7% on all investment projects. (Ignore income taxes.)
The present value of the annual cost savings of $128,000 is closest to: (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)
$610,176
$768,000
$187,448
$1,283,462
The management of Melchiori Corporation is considering the purchase of a machine that would cost $480,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $128,000 per year. The company requires a minimum pretax return of 7% on all investment projects. (Ignore income taxes.)
Explanation / Answer
Solution :-
The present value of the annual cost savings of $128,000 is closest to: $610176
PVF at 7% for 6 years is 4.767
now PV = PVF x 128000
PV = 4.767 x 128000
PV = 610176
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