Rambus Inc.would like to purchase a production machine for $325,000.The machine is expected to have a life of three years,and a salvage value of $50,000.Annual maintenance costs will total $12,500.Annual savings are predicted to be $112,500.The company's required rate of return is 12 percent.

(1)Using the Present Value Factors for $1,calculate the net present value of this investment (ignoring taxes).
(2)Based on your answer in requirement 1,should Rambus purchase the production machine?

Question

Rambus Inc.would like to purchase a production machine for $325,000.The machine is expected to have a life of three years,and a salvage value of $50,000.Annual maintenance costs will total $12,500.Annual savings are predicted to be $112,500.The company's required rate of return is 12 percent.
  
(1)Using the Present Value Factors for $1,calculate the net present value of this investment (ignoring taxes).
(2)Based on your answer in requirement 1,should Rambus purchase the production machine?

Quizplus · Accepted Answer

The Answer of Rambus Inc.would like to purchase a production machine for $325,000.The machine is expected to have a life of three years,and a salvage value of $50,000.Annual maintenance costs will total $12,500.Annual savings are predicted to be $112,500.The company's required rate of return is 12 percent.
  
(1)Using the Present Value Factors for $1,calculate the net present value of this investment (ignoring taxes).
(2)Based on your answer in requirement 1,should Rambus purchase the production machine?