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Minchanka [31]
3 years ago
12

HI Corporation is considering the purchase of a machine that promises to reduce operating costs by the same amount for every yea

r of its 5-year useful life. The machine will cost $205,980 and has no salvage value. The machine has a 14% internal rate of return. (Ignore income taxes).
Required:
What are the annual cost savings promised by the machine?
Business
1 answer:
EastWind [94]3 years ago
4 0

Answer:

Annual cost savings = 60,000

Explanation:

Given:

Present value of machine = $205,980

Use full life = 5 year

Internal rate of return = 14% = 0.14

Find

Annual cost savings = ?

Computation:

Annuity factor

\frac{1-(1+r)^{-n}}{r} \\\\\frac{1-(1+0.14)^{-5}}{0.14}\\\\\frac{1-(1.14)^{-5}}{0.14}\\\\3.433

Annual cost savings = Present value of machine / Annuity factor

Annual cost savings = $205,980 / 3.433

Annual cost savings = 60,000

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Using an excel spreadsheet we can determine the net present value (NPV function) of the cash flows associated with each project.

<u>Project A</u>                                                <u>Project B</u>

40                                                           30  

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6 0
3 years ago
Medium Lisa Co. paid cash for all of the voting common stock of Victoria Corp. Victoria will continue to exist as a separate cor
loris [4]

Answer:

a worksheet

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A work sheet can be regarded bad a Multiple column sheets in which

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6 0
3 years ago
What information is important when choosing a healthcare plan?
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8 0
4 years ago
Howard is saving for a holiday. He deposits a fixed amount every month in a bank account with an EAR of 14.7%. If this account p
blondinia [14]

Answer:

C) $220

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4 0
3 years ago
Mann Corporation decided to issue common stock and used the $120,000 proceeds to retire all of its outstanding bonds on January
Yuri [45]

Answer:

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5 0
3 years ago
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