The directors of Brisbane Ltd are considering an investment in new machine. The details of the...

   

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The directors of Brisbane Ltd are considering an investment in new machine. The details of the proposal are as follows: Cost: $500,000. Savings generated per year: $160,000 Useful life: 4 years Scrap value: $40,000 Required rate of return: 15 percent. Present value factors for discount rate of 15 percent for n periods: Required: n 1 2 3 4 Present value factor (15%) 0.870 0.756 0.658 0.572 (a) Calculate the net present value for the proposed purchase of a new machine and specify whether the project is acceptable. Ignore taxation. (7 marks) (b) Explain how money is said to have a 'time value'. (3 marks) The directors of Brisbane Ltd are considering an investment in new machine. The details of the proposal are as follows: Cost: $500,000. Savings generated per year: $160,000 Useful life: 4 years Scrap value: $40,000 Required rate of return: 15 percent. Present value factors for discount rate of 15 percent for n periods: Required: n 1 2 3 4 Present value factor (15%) 0.870 0.756 0.658 0.572 (a) Calculate the net present value for the proposed purchase of a new machine and specify whether the project is acceptable. Ignore taxation. (7 marks) (b) Explain how money is said to have a 'time value'. (3 marks)

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The time value of money is the amount of money that would be required at a specified time in the f... View the full answer