Rocky's Packaging Company is considering the purchase of a new piece of production machinery that will reduce
Question:
Rocky's Packaging Company is considering the purchase of a new piece of production machinery that will reduce labor and maintenance costs. Data related to the new machine follows:
Initial investment $200,000
Useful life 10 years
The salvage value of old machine $ 10,000
Annual cash savings $ 35,000
The salvage value of new machine $ 18,000
Cost of capital 12%
Assume all cash flows occur at the end of the year and ignore income taxes.
a. Calculate the net present value of the investment.
b. Determine the effect on net present value if the cost of capital is 16% and the new machine's salvage value is $22,000.
c. Return to the original data, and determine the effect on net present value if annual cash flows are reduced by 10% and the useful life is 12 years.
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt , Eugene F. Brigham