Prospect Park Department is considering a new capital investment. The following information is available on...
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Accounting
Prospect Park Department is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $300,000. The cost savings if the new machine is acquired will be $80,000 for the first three years and then $70,000 for the final two years. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $60,000. Prospect is assuming no tax consequences. What is the net present value for Prospect if the required rate of return is 12%?
Using the following tables:
Present Value of $1.00
Rate 8% 10% 12% 14%
Period
1 .9259 .9091 .8929 .8772
2 .8573 .8264 .7972 .7695
3 .7938 .7513 .7118 .6750
4 .7350 .6830 .6355 .5921
5 .6806 .6209 .5674 .5194
Present Value of $1.00 Received per Period
Rate 8% 10% 12% 14%
Period
1 .9259 .9091 .8929 .8772
2 1.7833 1.7355 1.6901 1.6467
3 2.5771 2.4869 2.4018 2.3216
4 3.3121 3.1699 3.0373 2.9137
5 3.9927 3.7908 3.6048 3.4331
A. ($23,652)
B. ($10,391)
C. $3,208
D. $10,391
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