Chico Company Is Considering the Purchase of a New High-Speed

question 93

Essay

Chico Company is considering the purchase of a new high-speed machine for its factory.The machine will cost $160,000 and will save the company $45,000 per year in cash operating costs.The machine has an estimated useful life of five years and no expected salvage value.The company's cost of capital is 12%.
(PV of $1 and PVA of $1)(Use appropriate factor(s)from the tables provided.)
Required:
1)Compute the net present value of this investment.
2)What is the maximum amount that Chico should be willing to pay for the machine?
3)What are the minimum annual cash savings that will make the machine acceptable on a net present value basis if the purchase price is $160,000?

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Definitions:

New Weight Loss Strategy

A novel approach or method aimed at reducing body weight through diet, exercise, or other interventions.

P-value

A statistical metric that helps determine the significance of results, specifically the probability of observing test results at least as extreme as the results actually observed, under the assumption that the null hypothesis is true.

Old Strategy

A previously used plan of action or policy designed to achieve a major or overall aim, now considered out-of-date or less effective.

Effectiveness

The degree to which something is successful in producing a desired or intended result.