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King Company's required rate of return is 10%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently.(Ignore income
King Company's required rate of return is 10%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently.(Ignore income taxes in this problem.) Required:
- 1. Machine A will cost $25,000 and will have a useful life of 15 years. Its salvage value will be $1,000, and cost savings are projected at $3,500 per year. Calculate the machine's net present value.
- 2. How much should King Company be willing to pay for Machine B if the machine promises annual cash inflows of $5,000 per year for eight years?
- 3.MachineChasaprojectedlifeoftenyears.Whatisthemachine'sinternalrateofreturnifitcosts$31,296andwillsave$6,000annuallyincashoperatingcosts?
- 4.WouldyourecommendtoKingCompanytopurchaseMachineC?Explain.
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