Sam's Structures Desires to Buy a New Crane and Accessories

question 75

Essay

Sam's Structures desires to buy a new crane and accessories to help move and install modular buildings.The machine sells for $75 000 and requires working capital of $10 000.Its estimated useful life is six years and it will have a salvage value of $17 560.Recovery of working capital will be $10 000 at the end of its useful life.Annual cash savings from the purchase of the machine will be $20 000.
Required:
a.Compute the net present value at a 12% required rate of return.
b.Compute the internal rate-of-return.
c.Determine the discounted payback period of the investment.
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Definitions:

Overweighting

Refers to the practice of allocating a larger percentage of a portfolio to a particular asset or sector than the benchmark or average portfolio.

Recent Performance

Refers to the latest outcomes or results of an investment's or financial instrument's activity over a short-term period.

Conventional Finance Theory

A framework in economics that explains the behavior of financial markets, including the dynamics of assets and securities pricing, investment portfolios, and market mechanisms.

Behavioral Finance

An area of study focusing on how psychological influences and biases affect the financial behaviors of investors and financial markets.