Question
Use the following information for questions 19-23 The Fox Company is trying to decide whether to invest in automated production equipment as they are currently
Use the following information for questions 19-23
The Fox Company is trying to decide whether to invest in automated production equipment as they are currently operating via manual labor. The following relates to the proposed investment to automate: $500,000 initial cost of the equipment, life of the project 5 years, estimated salvage value at the end of 5 years is $60,000, annual cash revenues $170,000 (received each year), annual cash expenses $40,000 (paid each year). At the end of year three, the company will have to pay $50,000 for an engine replacement. The discount rate is 10%.
Question 19
What is the present value of the $170,000 cash revenues received annually (received each year)?
Group of answer choices
$850,000
$650,000
$644,470
$492,830
Question 20
What is the present value of the $50,000 payment in year 3 to replace the engine?
Group of answer choices
($50,000)
($37,550)
($37,260)
($12,450)
Question 21
What is the present value of the $40,000 cash expenses paid annually (paid each year)?
Group of answer choices
($151,640)
($124,200)
($200,000)
($40,000)
Question 22
What is the net present value of the investment?
Group of answer choices
($13,670)
$0
($7,460)
$44,120
Question 23
Based on the net present value...
Group of answer choices
The rate of return for the investment is less than 10%.
The Fox Company should purchase the equipment
The rate of return for the investment is greater than 10%
The rate of return for the investment is equal to the discount rate
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