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.

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Definitions:

Yield to Maturity

The total rate of return anticipated on a bond if it is held until the date it matures, considering all payments of principal and interest.

Bond

A fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a fixed interest rate.

Dividends

Financial dividends issued by a corporation to its stockholders, primarily generated from the organization's revenues.

Coupon Payments

Periodic interest payments made to bondholders during the life of the bond.