The Management of Opray Corporation Is Considering the Purchase of a Machine

question 153

Multiple Choice

The management of Opray Corporation is considering the purchase of a machine that would cost $360,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $78,000 per year. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.The net present value of the proposed project is closest to:

• A) $15,646
• B) $89,588
• C) $7,536
• D) $186,000

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Definitions:

Mean

The average value of a data set, calculated by adding up all the numbers in the set and then dividing by the count of the numbers.

Confidence Interval

A spectrum of values, from sample measurements, that is anticipated to capture the value of a hidden population parameter.

Standard Error

A statistical measure that describes the distribution of sample means around the population mean, indicating the accuracy of a sample mean as an estimate of the population mean.

Confidence Interval

A range of values, derived from sample statistics, that likely contains the true value of an unknown population parameter.