The managerial accountant at Insider Technology Organization, a medical imaging company, considers the purchase of a new
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Question:
The managerial accountant at Insider Technology Organization, a medical imaging company, considers the purchase of a new machine to increase the efficiency in the image division. The existing machine is operable for more years and it will have a disposal price of $ If the current machine is sold now it will be worth $ The cost of the new machine is $ and an additional cash investment of working capital of $ is needed.
The manager expects the new machine to reduce the time needed to take each image, and it will improve the green energy environmental initiatives because it is more efficient. The new machine is expected to net $ in additional cash inflows during the year of acquisition and $ each additional year of use.
The new machine has a fiveyear life and $ disposal value. The cash flows will be recognized at the end of each year. The income taxes are not considered, and the investment in working capital is not
expected to be recovered at the end of the machine's useful years.
Required: Compute the net present value of the investment, assuming the required rate of return is Would the manager at the company want to purchase the new machine?
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
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