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4. Clumsy Cleaners has been considering the purchase of an industrial dry-cleaning machine. The new machine will cost $380,000. The new machine will reduce the
4. Clumsy Cleaners has been considering the purchase of an industrial dry-cleaning machine. The new machine will cost $380,000. The new machine will reduce the average amount of time required to wash clothing and will decrease labor costs. The investment is expected to net $125,000 in additional cash inflows during the first year of acquisition and $150,000 for each of the next two years (not including the disposal value of the machine). These cash flows will be recognized at the end of each year, for the calculation of net present value (NPV). The new machine has a three-year life, and a $25,000 disposal value at the end of the third year. Income taxes are not considered in this problem. Complete the following table to determine the net present value of the investment, assuming the required rate of return is 6%. Would the company want to purchase the new machine? (15 points.) Predicted Cash Flows PV Factor PV of Cash Flows Initial investment Year 1 cash flows Year 2 cash flows Year 3 cash flows Net present value Purchase new machine? (circle one): yes no
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