Marsh Products Is Evaluating an Investment in New Production Machinery

question 19

Multiple Choice

Marsh Products is evaluating an investment in new production machinery. The initial investment is $250,000 and will yield cash flows of $60,000 per year for a 5 year period. At the end of 5 years, the machinery will be sold and has expected residual value of $40,000. Marsh uses a discount rate of 7%. What is the net present value of the investment?

• A)$13,460
• B)$90,000
• C)$2,990
• D)$24,520

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Definitions:

Allotment

The distribution or assignment of a portion of something, often referring to shares of stock, land, or time.

Incorporation

Establishing a business entity as a corporation, which holds legal identity separate from its shareholders, enabling it to own property, sue, or be sued.

Advantages

Advantages refer to the beneficial factors or positive outcomes resulting from a specific action, decision, or situation.

Franchising

Arrangements based on contracts of service and the supply of products between larger and smaller units of one organization.