Prince Company's Required Rate of Return Is 10

question 29

Essay

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.(Ignore income taxes in this problem.)
Required:
a)Machine A will cost $25,000 and will have a useful life of 15 years.Its salvage value will be $1,000,and cost savings are projected at $3,500 per year.Calculate the machine's net present value.
b)How much should Prince Company be willing to pay for Machine B if the machine promises annual cash inflows of $5,000 per year for eight years?
c)Machine C has a projected life of ten years.What is the machine's internal rate of return if it costs $31,296 and will save $6,000 annually in cash operating costs? Would you recommend to Prince Company to purchase Machine C? Explain.