Rambus Inc (1)Using the Present Value Factors for $1,calculate the Net Present

question 51

Essay

Rambus Inc.would like to purchase a production machine for $325,000.The machine is expected to have a life of three years,and a salvage value of $50,000.Annual maintenance costs will total $12,500.Annual savings are predicted to be $112,500.The company's required rate of return is 12 percent.
$$\begin{array}{l}\text { Factors: Present Value of } \$ 1\\\begin{array} { c c } { ( \mathbf { r = 1 2 \% ) } } \\\hline \text { Year 0 } & 1.0000 \\\text { Year 1 } & 0.8929 \\\text { Year 2 } & 0.7972 \\\text { Year 3 } & 07118\end{array}\end{array}$$
(1)Using the Present Value Factors for $1,calculate the net present value of this investment (ignoring taxes).
(2)Based on your answer in requirement 1,should Rambus purchase the production machine?

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Definitions:

Debits

In accounting, an entry made on the left side of an account, increasing asset or expense accounts, or decreasing liability, equity, or revenue accounts.

Credits

Entries that increase liabilities or equity on the balance sheet or reduce assets.

Ledger

A book or digital record holding all the accounts of a company, showing the changes made to each account and the current balance.

Journal

A chronological record of all business transactions, used to transfer information to the general ledger.