Consider each part below independently. (Ignore income taxes in your calculations.) Use the built-in PV functions for these calculations. Enter PV(n;/) in a value box to calculate the present value of $1 over n compounding periods with a periodic rate of i. Similarly, use PVA(n;i) to calculate the present value of an annuity. E.g., the present value of $1,000 with a periodic rate of 3%, and 2 compounding periods can be entered as 1000 PV(2,3). a) NorthCo's required rate of return is 17% on all investments. The company can purchase a new machine at a cost of $65,000. The new machine would generate cash inflows of $17,000 per year and have an 18-year useful life and no salvage value. Compute the machine's net present value and decide if the machine is an acceptable investment. Round your present values to the nearest dollar. Present Value of Cash Flows Item Net annual cash inflows Net present value Is the machine an acceptable investment? (Select one) b) EastCo is investigating the purchase of a new machine that has a project life of 17 years. It is estimated that the new machine will save $11,000 per year in cash operating costs. If the new machine costs $124,014, what is its internal rate of return to the nearest whole percent? Is the machine an acceptable investment if the company's required rate of return is 10%? % Internal rate of return = Is the machine an acceptable investment? (Select one) c) Refer to the data in b) for EastCo. How much would the annual net cash flows (cost savings) have to be for the new machine to provide the required 10% rate of return? Round your answer to the nearest dollar. Annual net cash flows = $
Consider each part below independently. (Ignore income taxes in your calculations.) Use the built-in PV functions for these calculations. Enter PV(n;/) in a value box to calculate the present value of $1 over n compounding periods with a periodic rate of i. Similarly, use PVA(n;i) to calculate the present value of an annuity. E.g., the present value of $1,000 with a periodic rate of 3%, and 2 compounding periods can be entered as 1000 PV(2,3). a) NorthCo's required rate of return is 17% on all investments. The company can purchase a new machine at a cost of $65,000. The new machine would generate cash inflows of $17,000 per year and have an 18-year useful life and no salvage value. Compute the machine's net present value and decide if the machine is an acceptable investment. Round your present values to the nearest dollar. Present Value of Cash Flows Item Net annual cash inflows Net present value Is the machine an acceptable investment? (Select one) b) EastCo is investigating the purchase of a new machine that has a project life of 17 years. It is estimated that the new machine will save $11,000 per year in cash operating costs. If the new machine costs $124,014, what is its internal rate of return to the nearest whole percent? Is the machine an acceptable investment if the company's required rate of return is 10%? % Internal rate of return = Is the machine an acceptable investment? (Select one) c) Refer to the data in b) for EastCo. How much would the annual net cash flows (cost savings) have to be for the new machine to provide the required 10% rate of return? Round your answer to the nearest dollar. Annual net cash flows = $
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Consider each part below independently. (Ignore income taxes in your calculations.)
Use the built-in PV functions for these calculations. Enter PV(n;i) in a value box to calculate the present value of $1 over n compounding periods with a periodic rate of i. Similarly, use PVA(n;i) to calculate the present value of an annuity. E.g., the present value of
$1,000 with a periodic rate of 3%, and 2 compounding periods can be entered as 1000*PV(2,3).
a) NorthCo's required rate of return is 17% on all investments. The company can purchase a new machine at a cost of $65,000. The new machine would generate cash inflows of $17,000 per year and have an 18-year useful life and no salvage value. Compute the
machine's net present value and decide if the machine is an acceptable investment. Round your present values to the nearest dollar.
Present Value of Cash Flows
Item
Net annual cash inflows.
Net present value
Is the machine an acceptable investment?
(Select one)
b) East Co is investigating the purchase of a new machine that has a project life of 17 years. It is estimated that the new machine will save $11,000 per year in cash operating costs. If the new machine costs $124,014, what is its internal rate of return to the nearest whole
percent? Is the machine an acceptable investment if the company's required rate of return is 10%?
%
Internal rate of return =
Is the machine an acceptable investment? (Select one)
c) Refer to the data in b) for EastCo. How much would the annual net cash flows (cost savings) have to be for the new machine to provide the required 10% rate of return? Round your answer to the nearest dollar.
Annual net cash flows = $
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