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EXERCISE 14-12 Consider each part below independently. Ignore income taxes. Preston Company's required rate of return is 14% on all investments.

EXERCISE 14-12
Consider each part below independently. Ignore income taxes.

Preston Company's required rate of return is 14% on all investments. The
company can purchase a new machine at a cost of $84,900. The new machine
would generate cash inflows of$15,000 per year and have a 12-year useful
life with no salvage value. Compute the machine's net present value.
(Use the format shown in Exhibit 14—1.) Is the machine an acceptable
investment? Explain.

The Walton Daily News is investigating the purchase of a new auxiliary
press that has a projected life of 18 years. It is estimated that the
new press will save $30,000 per year in cash operating costs. If the new
press costs S217.500, what is its internal rate of return? Is the press
an acceptable investment if the company's required rate of return is
16%? Explain.

Refer to the data above for the Walton Daily News. How much would the
annual cash inflows (cost savings) have to be for the new press to
provide the required 16% rate of return? Round your answer to the
nearest whole dollar.

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Accounting-8219464.doc

EXERCISE 14­12 Consider each part below independently. Ignore income taxes.
Preston Company's required rate of return is 14% on all investments. The
company can purchase a new machine at a cost...

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