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MULTIPLE CHOICE EXAMPLES CHAPTER 12 1. Stratford Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $5,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, and assuming the company's discount rate is 10%, what is the purchase price of the machine if the net present value of the investment is $15,000? A) $10,184 B) $9.340 C) $10,009 D) $9,563 Ans: B Use tables or formula: PV = FV/ (1+r) N where r = interest rate/required rate of return N = Time period =4.868 15000 = 5000(4.868) – X X = $9,340 2. In an effort to reduce costs, Hally Manufacturing Corporation is considering an investment in equipment that will reduce defects. This equipment will cost $300,000, will have an estimated useful life of 10 years, and will have an estimated salvage value of $30,000 at the end of 10 years. Hally's discount rate is 16%. What amount of cost savings will this equipment have to generate
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This homework help was uploaded on 02/19/2009 for the course AEM 3230 taught by Professor Little,j.e. during the Spring '08 term at Cornell University (Engineering School).

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