The management of Melchiori Corporation is considering the purchase of a machine that would cost...
Question:
The management of Melchiori Corporation is considering the purchase of a machine that would cost $310,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $116,000 per year. The company requires a minimum pretax return of 16% on all investment projects.
The Present Value of the annual cost savings of $116,000 is closest to:
A: $696,000
B: $1,041,462
C: $175,448
D: $427,460
Present Value of Cash Flows:
The present value (PV) of cash flows pertaining to a project is nothing but the present worth of future cash flows. It is obtained by discounting future cash flows at a discount rate, which is ideally the cost of capital of the company (or) project. The basic idea behind discounting the cash flows is that the value of dollars in hand right now will be more than the value of the same amount of dollars received at a later point of time.
Answer and Explanation: 1
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View this answerThe Present Value (PV) of cash flows from the machinery proposed to be purchased by the management of Melchiori Corporation is closest to: $427,460.
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