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

question 84

Multiple Choice

Use the information below to answer the following question(s) .
Wet Water Company drills residential and commercial wells. The company is in the process of analyzing the purchase of a new drill. Information on the proposal is provided below:
Note: Other than the initial investment, cash flows are end of period.
-The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $950,000. The investment is expected to generate $350,000 in annual cash flows for a period of four years. The required rate of return is 14%. The old machine can be sold for $50,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered.

• A) $119,550; yes
• B) $69,550; no
• C) $1,019,550; yes
• D) $326,750; no
• E) $500,000; yes

---

Definitions:

Preferred Method

A recommended or favored way of doing something, often based on its effectiveness or efficiency.

Cash Flows

The entire amount of currency transactions flowing into and out of a venture, essentially affecting its cash flow status.

Payback Calculation

A financial analysis method used to determine the time required to recoup the cost of an investment, based on the cash inflows from the investment.

Time Value

Time value refers to the concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.