Idlewood Production Company would like to purchase a production machine for $450,000.The machine is expected to have a life of four years,and a salvage value of $50,000.Annual maintenance costs will total $12,500.Annual savings are predicted to be $175,000.The company's required rate of return is 12 percent.

(1)Calculate the net present value of this investment (ignore income taxes).Round all calculations to the nearest dollar.
(2)Based on your answer in requirement 1,should Idlewood purchase the production machine?

Question

Idlewood Production Company would like to purchase a production machine for $450,000.The machine is expected to have a life of four years,and a salvage value of $50,000.Annual maintenance costs will total $12,500.Annual savings are predicted to be $175,000.The company's required rate of return is 12 percent.
  
(1)Calculate the net present value of this investment (ignore income taxes).Round all calculations to the nearest dollar.
(2)Based on your answer in requirement 1,should Idlewood purchase the production machine?

Quizplus · Accepted Answer

The Answer of Idlewood Production Company would like to purchase a production machine for $450,000.The machine is expected to have a life of four years,and a salvage value of $50,000.Annual maintenance costs will total $12,500.Annual savings are predicted to be $175,000.The company's required rate of return is 12 percent.
  
(1)Calculate the net present value of this investment (ignore income taxes).Round all calculations to the nearest dollar.
(2)Based on your answer in requirement 1,should Idlewood purchase the production machine?

Idlewood Production Company Would Like to Purchase a Production Machine