Miles, Inc. is considering the purchase of a new machine for $600,000 that has an estimated useful

Question:

Miles, Inc. is considering the purchase of a new machine for $600,000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $105,000. It is believed that the new machine will also reduce downtime because of its reliability. Assume the discount is 8%. In order to make the project acceptable, the reduction in downtime must be worth

Present value of .926 1 at 8% Present Value of Annuity 1 at 8% .926 1.783 2.577 Year .857 .794 .735 3.312 .681 3.993 15

A) $45,263 per year
B) $18,264 per year
C) $49,662 per year
D) $23,958 per year

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...