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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Two alternative pumps are being compared. Pump A costs $5200, will save $1275 per year in operating and maintenance expenses, and is expected to last for 6 years. Pump B costs $6000, will save $1550 per year, and is also expected to last for 6 years. If the cost of capital is 12%, which has the better discounted payback period?
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- You can use machine A with an initial investment of $1,000 and a maintenance cost of $7,980 annually for the next five years. Alternatively, you can purchase machine B for $12,000 initial cost today, plus $5,000 annual maintenance with the same 5 years life. At a cost of capital of 15%, you should: Show your Work A. Use machine A and save $600 in equivalent annual annuity. B. Use machine A and save $302 in equivalent annual annuity. C. Use the machine B and save $596 in equivalent annual annuity. D. Buy the machine C and save $600 in equivalent annual annuity. E. Buy machine B and save $596 in equivalent annual annuity.arrow_forwardReplacing old equipment at an immediate cost of $40,000 and an additional outlay of $25,000 three years from now will result in savings of $15,000 per year for 5 years. The required rate of return is 7% compounded annually. Compute the net present value and determine if the investment should be accepted or rejected according to the net present value criterion. The net present value of the project is S. (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The proposal should be rejected. accepted.arrow_forwardThe Gables manufacturing Company is looking to replace its conveyor belt system. A new system will cost $345,000, and will result in cost savings of $220,000 in the first year, followed by savings of $100,000 per year over the following 3 years. If the firm’s cost of capital is 9%, what is the discounted payback period for this project? (Do not round intermediate computations. Round final answer to two decimal places.) A. 2.76 years B. 2.58 years C. 2.25 years D. 2.40 years Thank you.arrow_forward
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