DON CorpIs Contemplating the Purchase of a Machine That Will Produce

question 16

Short Answer

DON Corp.is contemplating the purchase of a machine that will produce net after-tax cash savings of $20,000 per year for 5 years.At the end of five years,the machine can be sold to realize after-tax cash flows of $5,000.Assuming a 12% discount rate,calculate the total present value of the cash savings.

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Definitions:

Interest Receipt

Interest Receipts are amounts received by an individual or a company as interest from investments, loans given, or savings.

Market Rate

The prevailing interest rate available in the market for loans or the return on investment securities.

Preferred Shares

Preferred shares are a type of equity security that typically provide dividends and asset liquidation preference over common shares but usually do not carry voting rights.

Common Shares

Equity securities that represent ownership in a corporation, giving holders voting rights and a share in the company’s profits through dividends.