# Finance-Capital-Budgting-NPV-v2 by ClassOf1

VIEWS: 51 PAGES: 3

• pg 1
```									              Sub: Finance                                                                       Topic: Capital Budgting

Question:
Selection of a machine through NPV

ClassOf1 provides expert guidance to College, Graduate, and High school students on homework and assignment problems in
Math, Sciences, Finance, Marketing, Statistics, Economics, Engineering, and many other subjects.

(Ignore income taxes in this problem.) Allen Company’s required rate of return is 12%. The
company is considering the purchase of three machines as indicated below. Consider each
machine independently.

Required:

a. Machine A will cost \$15,000 and have a life of 8 years. Its salvage value will be \$1,000
and cost savings are projected at \$3,000 per year. Compute the machine’s net present
value.

b. How much would Allen Company be willing to pay for machine B if the machine
promises annual cash inflows of \$6,000 per year for 10 years?

c. Machine C has a projected life of 12 years. What is the machine’s internal rate of return,
to the nearest whole percent, if it costs \$18,000 and will save \$2,500 a
```
To top