Question

Chicago Co. is interested in purchasing a machine that would improve its operational efficiency. The cost is $200,000 with an estimated residual value of $20,000 and a useful life of eight years. Cash inflows are expected to increase by $40,000 a year. The company's minimum rate of return is 10 percent. The present value of a single sum is 0.467, and the present value for a stream of payments that are the same amount each year is 5.335. What is the net present value of the project?

- A. 120,100
- B. 93,400
- C. 74,520
- D. 22,740

Answer #1

10. Sankey Corporation is considering purchasing a machine. The
cost of the machine is
$100,000. Its useful life is estimated to be 5 years and will
have no residual values at the end of
its useful life. The machine would produce a product annually
with the following financial
results:
Revenue 200,000
COGS 80,000
Gross Profit 120,000
Depreciation 20,000
Other Expenses 40,000
Net Income 60,000
Additional question: How to find annual net cash inflow for the
cash payback period?

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press also requires an initial investment in spare partsinventory
of $20,000. along with an additional $3,000 in inventory for
eachsucceeding year of the project. If the shop’s...

Wickersham Corp. is contemplating the purchase of a machine that
would improve the overall efficiency of the production process.
Horton, the General Manager, believes that the new machine
will:
Increase practical capacity by 10%, enabling Wickersham to
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Create $40,000 per year in variable operating expense savings,
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Require an annual inspection...

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