(Ignore income taxes in this problem.) The management of Melchiori Corporation is considering the purchase of a machine that would cost $310,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $116,000 per year. The company requires a minimum pretax return of 16% on all investment projects.
-The present value of the annual cost savings of $116,000 is closest to:

Question

Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula PV = C * [(1 - (1 + r)^-n) / r], where C is the annual cash flow, r is the discount rate, and n is the number of periods. Without specific values for r and n, we assume a typical scenario where A is the closest estimate.

(Ignore Income Taxes in This Problem