Chico Company Is Considering the Purchase of a New High-Speed

question 51

Short Answer

Chico Company is considering the purchase of a new high-speed machine for its factory. The machine will cost $160,000 and will save the company $45,000 per year in cash operating costs. The machine has an estimated useful life of five years and no expected salvage value. The company's cost of capital is 12%.(PV of $1and PVA of $1) (Use appropriate factor(s) from the tables provided.)Required:Compute the net present value of this investment.What is the maximum amount that Chico should be willing to pay for the machine?What are the minimum annual cash savings that will make the machine acceptable on a net present value basis if the purchase price is $160,000?

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Definitions:

Libido

In psychoanalytic theory, the drive toward the creation, nurturing, and enhancement of life (including but not limited to sex), or the energy stemming from this drive; also called psychic energy.

Mental Energy

A concept referring to the power of the mind to think, reason, and engage in purposeful action, often seen as a finite resource that can be depleted.

Id

Refers to a component of the psychoanalytic personality theory developed by Sigmund Freud that is responsible for our innate desires and urges, operating based on the pleasure principle.

Thanatos

In psychoanalytic theory, another term for the drive toward death, destruction, and decay.