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%. Factors: Present Value of $1 (r = 12%) Year 0 1.0000 Year 1 0.8929 Year 2 0.7972 Year 3 0.7118 Required: (1) Using the Present Value Factors for $1, calculate the net present value of this investment (ignoring taxes). (2) Based on your answer in requirement 1, should Rambus purchase the production machine?
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%. Factors: Present Value of $1 (r = 12%) Year 0 1.0000 Year 1 0.8929 Year 2 0.7972 Year 3 0.7118 Required: (1) Using the Present Value Factors for $1, calculate the net present value of this investment (ignoring taxes). (2) Based on your answer in requirement 1, should Rambus purchase the production machine?
Chapter9: Capital Budgeting Techniques
Section: Chapter Questions
Problem 12PROB
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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
Factors:
Year 0 1.0000 Year 1 0.8929 Year 2 0.7972 Year 3 0.7118
Required:
(1) Using the Present Value Factors for $1, calculate the
(2) Based on your answer in requirement 1, should Rambus purchase the production machine?
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