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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).
 Spring '08
 LITTLE,J.E.

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