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

question 168

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.
-What is the net present value (rounded to the nearest thousand) of the investment assuming the required rate of return is 24 percent? Would Hawkeye Cleaners want to purchase the new machine?

• A)$57,000; yes
• B)$(57,000); no
• C)$(3,000); no
• D)$29,000; yes
• E)$(13,000); no

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Definitions:

Triple

Multiplication by three or having three parts; in some contexts, it may refer to a rating, niveau, or layer that is three times stronger, higher, or more intense.

Supply

The total amount of a product or service available for purchase at any given time.

Statute Of Frauds

A rule of law that mandates specific kinds of agreements must be documented and signed to have legal force.

Oral Agreement

A verbal contract between parties where terms are agreed upon through spoken communication rather than in writing.