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Novak, Inc. is considering the purchase of a new machine for $690000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $120750. It is believed that the new machine will reduce downtime because of its reliability. Assume the discount rate is 8%. In order to make the project acceptable, the reduction in downtime must be worth Present Value PV of an Annuity Year of 1 at 8% of 1 at 8% 0.926 0.926 0.857 0.794 0.735 0.681 1 2 3 4 5 1.783 2.577 3.312 3.993

Novak, Inc. is considering the purchase of a new machine for $690000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $120750. It is believed that the new machine will reduce downtime because of its reliability. Assume the discount rate is 8%. In order to make the project acceptable, the reduction in downtime must be worth Present Value PV of an Annuity Year of 1 at 8% of 1 at 8% 0.926 0.926 0.857 0.794 0.735 0.681 1 2 3 4 5 1.783 2.577 3.312 3.993

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Novak, Inc. is considering the purchase of a new machine for $690000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $120750. It is believed that the new machine will reduce downtime because of its reliability. Assume the discount rate is 8%. In order to make the project acceptable, the reduction in downtime must be worth Year 1 2 3 4 5 Present Value PV of an Annuity of 1 at 8% of 1 at 8% 0.926 0.926 0.857 0.794 0.735 0.681 O $41569 per year. O $21097 per year. O $51716 per year. O $26294 per year. 1.783 2.577 3.312 3.993
Transcribed Image Text:Novak, Inc. is considering the purchase of a new machine for $690000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $120750. It is believed that the new machine will reduce downtime because of its reliability. Assume the discount rate is 8%. In order to make the project acceptable, the reduction in downtime must be worth Year 1 2 3 4 5 Present Value PV of an Annuity of 1 at 8% of 1 at 8% 0.926 0.926 0.857 0.794 0.735 0.681 O $41569 per year. O $21097 per year. O $51716 per year. O $26294 per year. 1.783 2.577 3.312 3.993
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