Question
1. Maryanne, Inc., is considering the purchase of a machine that would cost $550,000 and would last for 6 years, at the end of which,
1. Maryanne, Inc., is considering the purchase of a machine that would cost $550,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $55,000. The machine would reduce labor and other costs by $115,000 per year. Additional working capital of $9,000 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes.) |
Required: |
Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round final answers to the nearest dollar amount.) NET PRESENT VALUE _________
2. Columbia Company is considering a capital budgeting project that will require an initial investment of $100,000. The required rate of return is 12%. The net present value of the proposed project is $15,000. Which of the following statements is true regarding this project? EXPLAIN WHY a)Any of the other three choices could be true. b)The internal rate of return on the project is less than 12%. c)The internal rate of return is exactly 12%. d)The internal rate of return on the project is greater than 12%. |
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