DON Corp Is Contemplating the Purchase of a Machine That Will

question 74

Essay

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. Interest is 12%. Assume the cash flows occur at the end of each year.
Required: Calculate the total present value of the cash savings.

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Definitions:

Net Income

The total revenue minus total expenses, indicating the company’s profit or loss over a specific accounting period.

Accrued Salaries

Salaries that have been earned by employees but have not yet been paid by the company.

Adjust Account Balances

The process of updating ledger accounts at the end of a period to reflect accurate financial information for reporting.

Balance Sheet

A financial statement that displays a company's financial position at a specific point in time, showing assets, liabilities, and shareholders' equity.