Q34

Al's Wooden Turnings (AWT) would like to purchase a specialized bowl-producing machine for $700,000. The machine is expected to have a life of four years and a salvage value of $100,000. Maintenance costs will be $30,000 annually. Annual labor and material savings are predicted to be $250,000 each year. The company's required rate of return is 15 percent. What is AWT's net present value of acquiring and using the bowl-producing machine for the four year period?

a.

A net loss of $14,720

b.

A net gain of $14,720

c.

A gross savings of $880,000

d.

A gross expense of $865,280