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

question 74

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 payback period of the investment.

---

Definitions:

Goods

Physical items that are produced and can be traded or used to satisfy wants and needs.

Weak Axiom

A less stringent version of a mathematical axiom used in economics and decision theory that deals with the consistency of consumer choices under varying circumstances.

Revealed Preference

A concept in consumer theory stating that the preferences of consumers can be revealed by their purchasing habits.

Prices

The price in money anticipated, needed, or given in exchange for a commodity.