Fusion Inc Using the Net Present Value (NPV)to Evaluate This Proposal,the Company

question 2

Multiple Choice

Fusion Inc.would like to purchase a new machine for $85,000.The machine is expected to generate a cost savings of $23,000 per year for five years.The company's cost of capital is 10 percent.Factors for a 10 percent interest rate for five years are shown below:
$$\begin{array} { l l } \text { Future Value of } \$ 1 & 1.611 \\\text { Present Value of } \$ 1 & 0.621 \\\text { Future Value of an Annuity } & 6.105 \\\text { Present Value of an Annuity } & 3.791\end{array}$$
Using the net present value (NPV) to evaluate this proposal,the company should:

• A)Invest in the proposal since the NPV is $2,193
• B)Reject the proposal since the NPV is ($2,193).
• C)Invest in the proposal since the NPV is $80,000.
• D)Reject the proposal since the NPV is $87,193.
• E)None of the answer choices is correct.

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Definitions:

Amortization Expense

The process of gradually writing off the initial cost of an intangible asset over its useful life.

Statement Of Retained Earnings

This is a financial statement that outlines the changes in retained earnings for a specific period, factoring in net income and dividends.

Income Statement

A financial statement that shows a company's revenues and expenses over a particular period, culminating in its net income or loss.

Cumulative

Referring to something that increases or accumulates over time, such as cumulative voting rights or cumulative dividends.