(Ignore income taxes in this problem.) Prince Company's required rate of return is 10%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently.
Required:
a. Machine A will cost $25,000 and have a life of 15 years. Its salvage value will be $1,000, and cost savings are projected at $3,500 per year. Compute the machine's net present value.
b. How much will Prince Company be willing to pay for Machine B if the machine promises annual cash inflows of $5,000 per year for 8 years?
c. Machine C has a projected life of 10 years. What is the machine's internal rate of return, to the nearest whole percent, if it costs $30,000 and will save $6,000 annually in cash operating costs? Would you recommend purchase? Explain.

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The Answer of (Ignore income taxes in this problem.) Prince Company's required rate of return is 10%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently.
Required:
a. Machine A will cost $25,000 and have a life of 15 years. Its salvage value will be $1,000, and cost savings are projected at $3,500 per year. Compute the machine's net present value.
b. How much will Prince Company be willing to pay for Machine B if the machine promises annual cash inflows of $5,000 per year for 8 years?
c. Machine C has a projected life of 10 years. What is the machine's internal rate of return, to the nearest whole percent, if it costs $30,000 and will save $6,000 annually in cash operating costs? Would you recommend purchase? Explain.

(Ignore Income Taxes in This Problem