Asked by Katherin Mejia on Jun 01, 2024
Verified
The management of Opray Corporation is considering the purchase of a machine that would cost $360,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $78,000 per year. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.The present value of the annual cost savings of $78,000 is closest to:
A) $763,064
B) $177,027
C) $546,000
D) $367,536
Annual Cost Savings
The reduction in costs achieved during a specific year, often as a result of process improvements or efficiency gains.
Discount Factor(s)
A multiplier for determining the present value of future cash flows or investments.
Pretax Return
The profit a company generates before taxes are taken into account, often expressed as a percentage of sales or investment.
- Compute and articulate the net present value (NPV) of a range of investment proposals.
- Appreciate the importance of salvage value and working capital in the process of making investment decisions.
Verified Answer
Learning Objectives
- Compute and articulate the net present value (NPV) of a range of investment proposals.
- Appreciate the importance of salvage value and working capital in the process of making investment decisions.
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