The management of Mashiah Corporation is considering the purchase of a machine that would cost...
Question:
The management of Mashiah Corporation is considering the purchase of a machine that would cost $290,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $102,000 per year. The company requires a minimum pretax return of 13% on all investment projects. The present value of the annual cost savings of $102,000 is closest to:
a. $849,012
b. $612,000
c. $195,872
d. $407,796
Present Value of an Investment:
Present value refers to the value today of an amount to be received in future, discounted to the present using a discounting rate of return. The present value of an annuity is of two types, the present value of an annuity due (where payments are made at the beginning of period) and the present value of an ordinary annuity (where payments are made at the end of the period).
Answer and Explanation: 1
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View this answerCorrect answer: Option d) $407,796
Explanation:
As per the information provided by Mashiah Corporation:
- Cost of machine = $290,000
- Life of machine...
See full answer below.
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How to Calculate Present Value of an Investment: Formula & Examples
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Chapter 24 / Lesson 15
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Calculating the present value of an investment tells how much money needs to be saved now in order to reach a desired, future amount. Explore the definition of and formula for the present value of an investment, and see examples.
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