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
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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:
n
1
2
3
4
Present value factor (15%)
0.870
0.756
0.658
0.572
Required:
(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.
Transcribed Image Text: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: n 1 2 3 4 Present value factor (15%) 0.870 0.756 0.658 0.572 Required: (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.
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