A Local Merchant Is Considering the Purchase of a New

question 49

Essay

A local merchant is considering the purchase of a new machine which has an initial cost of $35 000.Annual operating cash inflows are expected to be $10 000 each year for five years.No salvage value is expected at the end of the machine's life.The company's cost of capital is 14 per cent.
Required: Compute the net present value of the machine.(Ignore income taxes)

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Definitions:

Financing Activities

Financing activities are transactions and business events that involve raising capital and repaying investors, affecting a company's equity and liabilities.

Long-term Debt

Borrowings and financial obligations that are due more than one year in the future, often used for financing or acquiring assets.

Stock Options

Contracts that give the holder the right, but not the obligation, to buy or sell a specified amount of stock at a predetermined price within a set time period.

Accounts Receivable

Amounts owed to a company by its customers for goods or services that have been delivered but not yet paid for.