Butler Corporation Is Considering the Purchase of New Equipment Costing $$\begin{array} { c c } \text { Periods } & 12 \% \\1 & 0.8929 \\2 & 1.6901 \\3 & 2.4018 \\4 & 3.0373\end{array}$$

question 45

Multiple Choice

Butler Corporation is considering the purchase of new equipment costing $30,000. The projected annual after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage value. Butler requires a 12% return on its investments. The present value of an annuity of $1 for different periods follows:

$$\begin{array} { c c } \text { Periods } & 12 \% \\1 & 0.8929 \\2 & 1.6901 \\3 & 2.4018 \\4 & 3.0373\end{array}$$ What is the net present value of the machine?

• A) $24,018.
• B) $(3,100).
• C) $30,000.
• D) $26,900.
• E) $(29,520).

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Definitions:

Decision Making

The act of choosing involves recognizing a choice that needs to be made, assembling necessary information, and weighing up various possible solutions.

Limits to Rationality

The boundaries within which human reasoning and decision-making effectiveness are constrained, often due to a lack of information or cognitive capabilities.

Risk

The possibility of facing harm or loss when engaging in an activity or making a decision.

Time Pressure

The stress and sensation of urgency induced by the belief that there is not enough time to complete a task or meet a deadline.