Use the Information Below to Answer the Following Question(s)

question 30

Multiple Choice

Use the information below to answer the following question(s) .Hawkeye Cleaners has been considering the purchase of an industrial dry-cleaning machine.The existing machine is operable for three more years and will have a zero disposal price.If the machine is disposed of now, it may be sold for $30,000.The new machine will cost $200,000, an additional cash investment in working capital of $60,000 will be required and will be returned at the end of the project.The machine is expected to last 3 years and has an estimated disposal value at that time of $20,000.The new machine will reduce the average amount of time required to wash clothing and will decrease labour costs.The investment is expected to net $50,000 in additional cash inflows during the year of acquisition and $150,000 each additional year of use.These cash flows will generally occur throughout the year and are recognized at the end of each year.Income taxes are not considered in this problem.
-Easton Ltd.is considering investing in a new piece of machinery for its factory.The machine costs $340,000 and is expected to last 7 years.It estimates that annual cash flows would be $82,000 and the equipment would have a salvage value of $13,000.The company's hurdle rate is 11%.What is the net present value of this investment? (Ignore income taxes.)

• A)$87,625
• B)$46,400
• C)$52,662
• D)$234,000
• E)$247,000

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Definitions:

Statistic

A statistic is a single measure, reported as a number, used to summarize a sample and to estimate the corresponding value in the larger population from which the sample was drawn.

Parameter

A parameter is a numerical characteristic of a population, such as its mean or standard deviation, as opposed to a statistic of a sample.

Central Tendency

A statistical measure that identifies a single value as representative of an entire distribution of data.

Outliers

Observations in a dataset that are significantly distant from the other observations, potentially indicating a measurement error or a different population.