Assuming a discount rate of 7%, what is the net present value of buying the new machine?
Assuming a discount rate of 7%, what is the net present value of buying the new machine?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![X Company is considering the purchase of a new machine. The machine would reduce the amount of part-time labor, at a cost savings of $17,090 per year. In addition, the machine would enable the company to
increase production and sales of one of its products by 2,000 units; contribution margin of this product is $5.30 per unit. The machine would cost $150,000, last for five years, and have zero salvage value at
the end of its life.
Assuming a discount rate of 7%, what is the net present value of buying the new machine?
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If the new machine will last for six years instead of five, what is the approximate internal rate of return of buying it? [enter your answer as .XX, so 1% would be .01]
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Transcribed Image Text:X Company is considering the purchase of a new machine. The machine would reduce the amount of part-time labor, at a cost savings of $17,090 per year. In addition, the machine would enable the company to
increase production and sales of one of its products by 2,000 units; contribution margin of this product is $5.30 per unit. The machine would cost $150,000, last for five years, and have zero salvage value at
the end of its life.
Assuming a discount rate of 7%, what is the net present value of buying the new machine?
Submit Answer
Tries 0/4
If the new machine will last for six years instead of five, what is the approximate internal rate of return of buying it? [enter your answer as .XX, so 1% would be .01]
Submit Answer
Tries 0/4
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