A company bought Machine 1 on March 5, 2014 for $5,000 cash. The estimated salvage was $200 and the estimated life was 11 years. On March 5, 2015, the company learned that it could buy a different machine for $8,000 cash. The new machine would save the company an estimated $250 per year compared to Machine 1. The new machine would have no estimated salvage and an estimated life of 10 years. The company could get $3,000 for Machine 1 on March 5, 2015. Which of the following calculations would best assist the company in deciding whether to purchase the new machine? (Ignore taxes)(PV of an annuity of $250) + $3,000 - $8,000(PV of an annuity of $250) - $8,000 + $200(PV of an annuity of $250) + $3,000 - $8,000 - $5,000(PV of an annuity of $250) + $3,000 - $8,000 - $4,800(PV of an annuity of $250) + $3,000 - $5,000

Net present value (NPV) is one of the capital budgeting methods that is used to determine the…

Answered: A company bought Machine 1 on March 5,…

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

10th Edition

ISBN:9781337902571

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...

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A company bought Machine 1 on March 5, 2014 for $5,000 cash. The estimated salvage was $200 and the estimated life was 11 years. On March 5, 2015, the company learned that it could buy a different machine for $8,000 cash. The new machine would save the company an estimated $250 per year compared to Machine 1. The new machine would have no estimated salvage and an estimated life of 10 years. The company could get $3,000 for Machine 1 on March 5, 2015. Which of the following calculations would best assist the company in deciding whether to purchase the new machine? (Ignore taxes)

(PV of an annuity of $250) + $3,000 - $8,000
(PV of an annuity of $250) - $8,000 + $200
(PV of an annuity of $250) + $3,000 - $8,000 - $5,000
(PV of an annuity of $250) + $3,000 - $8,000 - $4,800
(PV of an annuity of $250) + $3,000 - $5,000

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