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

question 7

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 10 percent? Would Hawkeye Cleaners want to purchase the new machine?

• A)$112,000; yes
• B)$52,000; yes
• C)$(52,000); no
• D)$(67,000); no
• E)$127,000; yes

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Definitions:

Joint Venture Firm

A business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance.

Sole Proprietorship

A company that is owned and run by just one person, with no legal separation between the owner and the business itself.

Limited Liability Company

A business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

Discretionary Income

The amount of an individual's income left for spending, investing, or saving after taxes and basic necessities have been paid.