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Paragas, Incorporated, Is Considering the Purchase of a Machine That

question 218

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Paragas, Incorporated, is considering the purchase of a machine that would cost $370,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $52,000. The machine would reduce labor and other costs by $96,000 per year. Additional working capital of $4,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 19% 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 combined present value of the working capital needed at the beginning of the project and the working capital released at the end of the project is closest to:

Definitions:

Critical Value

A point on the scale of the test statistic beyond which we reject the null hypothesis; it determines the cut-off point for significance in hypothesis testing.

Dunnett Test

A statistical test used to compare multiple groups against a single control group without increasing the type I error rate.

Familywise Error

The risk of obtaining a false discovery, or type I error, when multiple tests of hypotheses are carried out.

Host Country

The nation in which a multinational company operates a facility or office, distinct from the country where its headquarters is located.