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Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years.  Their current cost of capital is 10%.  Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457   Required:  What is the present value of the cash outflows/Investment       $1,750,000     $963,850     $(963,850)     $(1,750,000)

Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years.  Their current cost of capital is 10%.  Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457   Required:  What is the present value of the cash outflows/Investment       $1,750,000     $963,850     $(963,850)     $(1,750,000)

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
Section: Chapter Questions
Problem 21BEA
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QUESTION 32

  1. Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years.  Their current cost of capital is 10%.  Following are selected factors from tables for 10 years at 10%:

    FV of $1

    FVOA

    PV of $1

    PVOA

    2.59374

    15.93742

    0.38554

    6.14457

     

    Required:  What is the present value of the cash outflows/Investment

     

       

    $1,750,000
       

    $963,850
       

    $(963,850)
       

    $(1,750,000)

     

     

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