The directors of Brisbane Ltd are considering an investment in new machine. The details of the proposal are as follows: • Cost: $500,000. Savings generated per year: $160,000 Useful life: 4 years Scrap value: $40,000 Required rate of return: 15 percent. Present value factors for discount rate of 15 percent for n periods: Required: n 1 2 3 4 Present value factor (15%) 0.870 0.756 0.658 0.572 (a) Calculate the net present value for the proposed purchase of a new machine and specify whether the project is acceptable. Ignore taxation. (b) Explain how money is said to have a 'time value.

The directors of Brisbane Ltd are considering an investment in new machine. The details of the proposal are as follows: • Cost: $500,000. Savings generated per year: $160,000 Useful life: 4 years Scrap value: $40,000 Required rate of return: 15 percent. Present value factors for discount rate of 15 percent for n periods: Required: n 1 2 3 4 Present value factor (15%) 0.870 0.756 0.658 0.572 (a) Calculate the net present value for the proposed purchase of a new machine and specify whether the project is acceptable. Ignore taxation. (b) Explain how money is said to have a 'time value.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Saved Help Save & Prairie Corporation has provided the following information for a proposed investment project: Discount rate 10% Life of the project 4 years Initial investment cost $23,775 Annual cost savings 7,500 Salvage value 1,500 What is the net present value of the proposed investment project? (Select the answer that is closest to your calculations.) Present value tables are provided below. Present Value of $1 Table (Exhibit 11B-1) (Partial table) Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 4. 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.731 0.677 0.627 0.582 0.540…
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