Intermediate Accounting

Q3. Idlewood Production Company would like to purchase a production machine for $450,000. The machine is expected to have a life of four years, and a salvage value of $50,000. Annual maintenance costs will total $12,500. Annual savings are predicted to be $175,000. The company's required rate of return is 12 percent. Factors: Present Value of $1 Factors: Present Value of an Annuity (r = 12%) (r = 12%) Year 0 1.0000 Year 1 0.8929 Year 1 0.8929 Year 2 0.7972 Year 2 1.6901 Year 3 0.7118 Year 3 2.4018 Year 4 0.6355 Year 4 3.0373 Required: a) Calculate the net present value of this investment (ignore income taxes). Round all calculations to the nearest dollar. b) Based on your answer in requirement (a), should Idlewood purchase the production machine