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

question 124

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%.
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?

---

Definitions:

Distress

Extreme anxiety, pain, or sorrow, often resulting from experiencing or anticipating stressors or adversities.

Empathy

The ability to understand and share the feelings of another, fostering emotional connection and social bonding.

Males

Members of the sex that produces small, mobile gametes, typically associated with certain biological and physical characteristics.

Females

Referring to the sex that typically has the ability to produce eggs (ova) and bear offspring.