Question
Filbert owns a service station and could purchase a new machine for $30,000. After carefully studying projected costs and revenues, Filbert estimates that the machine
Filbert owns a service station and could purchase a new machine for $30,000. After carefully studying projected costs and revenues, Filbert estimates that the machine will produce a net cash flow of $5,200 annually and will last for eight years. He determines that an interest rate of 14% is adequate for his business. Calculate the present value of the machine. When making these calculations, you need to use a present value factor that is carried to three decimal places to get the correct answers. Then determine if the purchase of this machine for $30,000 appears to be a smart decision. You must show your work and the present value of the machine must contain a dollar sign and be shown as dollars and cents. A full statement must be made stating if the machine should be purchased and a why you have come to your conclusion.
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