Touche Manufacturing Is Considering a Rearrangement of Its Manufacturing Operations

question 56

Essay

Touche Manufacturing is considering a rearrangement of its manufacturing operations.A consultant estimates that the rearrangement should result in after-tax cash savings of $6,000 the first year,$10,000 for the next two years,and $12,000 for the next two years.Interest is at 12%.Assume cash flows occur at the end of the year.
Required: Calculate the total present value of the cash flows.

---

Definitions:

Risk Free Asset

An investment with a guaranteed return and no risk of financial loss, typically government bonds.

Expected Returns

The anticipated profit or yield from an investment, considering both the risk and the return.

Variance of Returns

A statistical measurement of the dispersion or spread of a set of investment returns, used to understand investment risk.

Positively Correlated

A relationship between two variables where they move in the same direction, meaning that as one variable increases, the other variable also increases, and vice versa.