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Question 2 Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600. The machine's estimated life is six years and its estimated salvage value is $600. Dorothy & George Company estimates that annual cash savings from using this machine will be $8,000. The company's cost of capital is 8 percent and its income tax rate is 40 percent. The company uses straight-line depreciation. Data Cost of new machine Machine's estimated useful life Estimated salvage value Annual cost savings Cost of capital Income tax rate Required: $30,600 6 $600 $8,000 8% 40% 1. What is this investment's net after-tax annual cash inflow (rounded to nearest whole dollar)? 2. What is the payback period in years? (Round your answer to two (2) decimal places.) 3. What is the net present value (NPV of this investment? the present value annuity factor for 8%, 6 years is 4.623. Cash flow 4. What are the minimum net after-tax cost savings that make the proposed investment acceptable? The present value factor for 8%, 6 years is 0.630; the present value annuity factor fo 8%, 6 years is 4.623. Round your final answer to the nearest whole dollar.

Question 2 Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600. The machine's estimated life is six years and its estimated salvage value is $600. Dorothy & George Company estimates that annual cash savings from using this machine will be $8,000. The company's cost of capital is 8 percent and its income tax rate is 40 percent. The company uses straight-line depreciation. Data Cost of new machine Machine's estimated useful life Estimated salvage value Annual cost savings Cost of capital Income tax rate Required: $30,600 6 $600 $8,000 8% 40% 1. What is this investment's net after-tax annual cash inflow (rounded to nearest whole dollar)? 2. What is the payback period in years? (Round your answer to two (2) decimal places.) 3. What is the net present value (NPV of this investment? the present value annuity factor for 8%, 6 years is 4.623. Cash flow 4. What are the minimum net after-tax cost savings that make the proposed investment acceptable? The present value factor for 8%, 6 years is 0.630; the present value annuity factor fo 8%, 6 years is 4.623. Round your final answer to the nearest whole dollar.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 18E
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Question 2 Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600. The machine's estimated life is six years and its estimated salvage value is $600. Dorothy & George Company estimates that annual cash savings from using this machine will be $8,000. The company's cost of capital is 8 percent and its income tax rate is 40 percent. The company uses straight-line depreciation. Data Cost of new machine Machine's estimated useful life Estimated salvage value Annual cost savings Cost of capital Income tax rate Required: $30,600 6 $600 $8,000 8% 40% 1. What is this investment's net after-tax annual cash inflow (rounded to nearest whole dollar)? 2. What is the payback period in years? (Round your answer to two (2) decimal places.) 3. What is the net present value (NPV of this investment? the present value annuity factor for 8%, 6 years is 4.623. Cash flow 4. What are the minimum net after-tax cost savings that make the proposed investment acceptable? The present value factor for 8%, 6 years is 0.630; the present value annuity factor for 8%, 6 years is 4.623. Round your final answer to the nearest whole dollar.
Transcribed Image Text:Question 2 Dorothy & George Company is planning to acquire a new machine at a total cost of $30,600. The machine's estimated life is six years and its estimated salvage value is $600. Dorothy & George Company estimates that annual cash savings from using this machine will be $8,000. The company's cost of capital is 8 percent and its income tax rate is 40 percent. The company uses straight-line depreciation. Data Cost of new machine Machine's estimated useful life Estimated salvage value Annual cost savings Cost of capital Income tax rate Required: $30,600 6 $600 $8,000 8% 40% 1. What is this investment's net after-tax annual cash inflow (rounded to nearest whole dollar)? 2. What is the payback period in years? (Round your answer to two (2) decimal places.) 3. What is the net present value (NPV of this investment? the present value annuity factor for 8%, 6 years is 4.623. Cash flow 4. What are the minimum net after-tax cost savings that make the proposed investment acceptable? The present value factor for 8%, 6 years is 0.630; the present value annuity factor for 8%, 6 years is 4.623. Round your final answer to the nearest whole dollar.
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