Question
Huon Cheese wants to buy a product wrapping machine to replace several employees. The outlay required is $300,000. The machine will be useful for five
Huon Cheese wants to buy a product wrapping machine to replace several employees.
The outlay required is $300,000. The machine will be useful for five years at which time the organisation will upgrade. The machine will have a $91,000 expected salvage value. Huon Cheese will save $70,000 per year in employee salaries but the machine will need $5,000 of maintenance per year.
The cost of capital is 10 per cent and a payback period of 5 years is expected.
Use the following present value table to help calculate your answer:
Number of Periods | 9% | 10% | 11% |
1 | 0.917 | 0.909 | 0.901 |
2 | 0.842 | 0.826 | 0.812 |
3 | 0.772 | 0.751 | 0.731 |
4 | 0.708 | 0.683 | 0.659 |
5 | 0.650 | 0.621 | 0.593 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started