Miles, Inc. is considering the purchase of a new machine for $600,000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $105,000. It is believed that the new machine will also reduce downtime because of its reliability. Assume the discount is 8%. In order to make the project acceptable, the reduction in downtime must be worth
|Year||Present value of 1 at 8%||Present Value of Annuity 1 at 8%|
A) $45,263 per year
B) $18,264 per year
C) $49,662 per year
D) $23,958 per year
Net Present Value:
Net present value is difference between cash outflow and net present value of cash inflow. Net present value is useful to decide whether a project is beneficial or not . IF the net present value of a project is positive than project is financially visible. Project with higher present value is beneficial than other project.
Answer and Explanation:
See full answer below.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
fromChapter 3 / Lesson 18
How does a business figure out the true cost and best means of obtaining capital? In this lesson, we will explore the cost of capital, flotation cost, net present value, and internal equity to help answer that question.