The Zeron Corporation Wants to Purchase a New Machine for Its

question 103

Multiple Choice

The Zeron Corporation wants to purchase a new machine for its factory operations at a cost of $380,000. The investment is expected to generate $225,000 in annual cash flows for a period of four years. The required rate of return is 10%. The old machine can be sold for $30,000. The machine is expected to have zero value at the end of the four-year period. What is the net present value of the investment? Would the company want to purchase the new machine? Income taxes are not considered.

• A) $363,025; yes
• B) $22,500; no
• C) $350,000; yes
• D) $375,650; no

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Definitions:

Verbal Comprehension

The capacity to understand, interpret, and analyze spoken or written language.

Perceptual Reasoning

The ability to use information obtained through the senses, especially sight, to solve problems, understand spatial relationships, and perceive visual details.

Fluid Intelligence

The capacity to think logically and solve problems in novel situations, independent of acquired knowledge.

Reason

The cognitive process of looking for reasons, forming conclusions, judgments, or inferences based on logical premises or evidence.