Answer the Following Questions Using the Information Below

question 68

Multiple Choice

Answer the following questions using the information below:
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 now, it may be sold for $120,000. The new machine will cost $400,000 and an additional cash investment in working capital of $120,000 will be required. The new machine will reduce the average amount of time required to wash clothing and will decrease labor costs. The investment is expected to net $100,000 in additional cash inflows during the year of acquisition and $300,000 each additional year of use. The new machine has a three-year life, and zero disposal value. 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. The working capital investment will not be recovered at the end of the asset's life.
-What is the net present value of the investment, assuming the required rate of return is 10%? Would the company want to purchase the new machine?

• A)$164,000; yes
• B)$100,000; no
• C)$(100,000); yes
• D)$(164,000); no

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Definitions:

Adhesion

The force that holds molecules of different substances together, important in various biological and physical processes.

Cohesion

The action or property of like molecules sticking together, being mutually attractive.

Cohesion

The action or property of molecules of the same substance sticking together, playing a critical role in the movement of water in plants.

Adhesion

Adhesion refers to the process or condition in which different substances or surfaces stick together, often involving proteins that bind cells to each other or to extracellular matrices.