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Century Lab plans to purchase a new centrifuge machine for its New Hampshire facility. The machine costs $225,000 and is expected to have a useful
Century Lab plans to purchase a new centrifuge machine for its New Hampshire facility. The machine costs $225,000 and is expected to have a useful life of 10 years, with a terminal disposal value of $3,000. Savings in cash operating costs are expected to be $48,500 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $39,000 needs to be maintained at all times, but this investment is fully recoverable will be "cashed in") at the end of the useful life. Century Lab's required rate of return is 10%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Century Lab uses straight-line depreciation for its machines. Present Value of $1 table Present Value of Annuity of $1 table Future Value of $1 table Future Value of Annuity of $1 table Requirements - X us sign or parentheses for a negative net present value. Enter 1. Calculate net present value 2. Calculate internal rate of return. 3. Calculate accrual accounting rate of return based on net initial investment. 4. Calculate accrual accounting rate of return based on average investment 5. You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods? Print Done
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