Question
1. (Ignore income taxes in this problem.) Henscheid Roofing is considering the purchase of a crane that would cost $136,040, would have a useful life
1. (Ignore income taxes in this problem.) Henscheid Roofing is considering the purchase of a crane that would cost $136,040, would have a useful life of 9 years, and would have no salvage value. The use of the crane would result in labor savings of $20,000 per year. The internal rate of return on the investment in the crane is closest to:
Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables.
A. 7%
B. 4%
C. 6%
D. 9%
2. (Ignore income taxes in this problem.) Tangen Corporation is considering the purchase of a machine that would cost $393,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $86,500. By reducing labor and other operating costs, the machine would provide annual cost savings of $105,300. The company requires a minimum pretax return of 14% on all investment projects. The net present value of the proposed project is closest to:
Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables.
A. $103,012
B. $16,512
C. $22,932
D. $55,956
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