Problem #3:

Capital Budgets Rambus Inc. would like to purchase a production machine for $325,000. The machine is expected to have a life of three years, and a salvage value of $50,000. Annual maintenance costs will total $12,500. Annual savings are predicted to be $112,500. The company's required rate of return is 12%.

Required: Ignoring the time value of money, calculate the net cash inflow or outflow resulting from this investment opportunity.

1. Use your plan of action to solve each problem, clearly outlining the procedures used, providing a concise explanation of each step, labeling relevant formulas, and showing worked out calculations and complete solutions. You may use an Excel spreadsheet or a calculator to help you perform the necessary calculations, but all corresponding work must be shown completely.

2. Answer all questions posed in the problem; if applicable, analyze and evaluate your results and provide a contextual explanation of the solutions you obtained.

3. Review your calculations and solutions and make sure that an external viewer would be able to follow your methodology and make sense of your calculations and corresponding explanations. Make certain that you have completed all steps of each problem.