Rex Products has been considering the purchase of a new machine. The existing machine will operate for

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Rex Products has been considering the purchase of a new machine. The existing machine will operate for 4 more years and will then have a zero disposal value. If the machine is disposed of now, it may be sold for \($60,000.\) The new machine costs \($250,000\) and will result in labour savings of \($60,000\) in additional cash inflows each year.

What is the net present value of the investment, assuming that the cost of capital is 10%? Would the company want to purchase the new machine?

a. \($(200);\) no

b. \($(59,800);\) no

c. \($59,800;\) yes

d. \($200;\) yes

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Accounting For Managers Interpreting Accounting Information For Decision Making

ISBN: 9781118037966

1st Canadian Edition

Authors: Paul M. Collier, Sandy M. Kizan, Eckhard Schumann

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