Wiess Corp. is considering the purchase of a new machine. The machine will generate cost savings of $15,000 in year 1, $22,000 in year 2, and $32,000 in year 3. Wiess uses a discount rate of 10%. What is the most that Wiess would be willing to pay for the new machine? Ignore income taxes.

Question

Quizplus · Accepted Answer

The most Wiess would be willing to pay is the present value of the cost savings. Calculating the present value of each year's savings and summing them gives: $15,000/(1.1)^1 + $22,000/(1.1)^2 + $32,000/(1.1)^3 = $55,839.