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Question 32 3/3 pts This Problem Counts 3 Points Let's say that Saint Andrews Chips considers a 4th option regarding the industrial grade bagging machine.
Question 32 3/3 pts This Problem Counts 3 Points Let's say that Saint Andrews Chips considers a 4th option regarding the industrial grade bagging machine. Saint Andrews Chips engineers have determined that if the firm buys the machine (without the service contract) a method can be devised by their maintenance organization to preserve and actually enhance the capability of the machine over time. By reinvesting 25% of the annual cost savings back into new machine parts, the engineers can increase the cost savings at a 3% annual rate. For example, at the end of year one, 25% of the $25,000 cost savings ($6,250) is reinvested in the machine, resulting in $18,750 in savings. Next year, the cash flow from cost savings grows by 3% and so on. As long as the 25% reinvestment continues, the cash flows continue to grow at 3% in perpetuity. Determine the net present value of this option and select the answer that comes the closest to your solution. $38,979 $162.857 $18.750 $45.455 $5.203
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