Paige Company is contemplating the acquisition of a machine that costs $50,000 and promises to...
Question:
Paige Company is contemplating the acquisition of a machine that costs $50,000 and promises to reduce annual cash operating costs by $11,000 over the next six years. Which of the following is a proper way to evaluate this investment if the company desires a 12% return on all investments?
Net Present Value:
Net present value is a commonly used method for assessing profitability of a project or investment. It is calculated as the present value of cash inflows minus the present value of cash outflows. A project is profitable only if it has a positive net present value.
Answer and Explanation: 1
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View this answerWe can use the net present value approach to evaluate this investment. To compute the net present value, we first compute the present value of cash...
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