Asked by Adecel Rusty on Jun 01, 2024
Verified
HI Corporation is considering the purchase of a machine that promises to reduce operating costs by the same amount for every year of its 7-year useful life. The machine will cost $211,580 and has no salvage value. The machine has a 14% internal rate of return. (Ignore income taxes.)Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.Required:What are the annual cost savings promised by the machine? (Round your intermediate calculations and final answer to the nearest whole dollar amount.)
Internal Rate Of Return
A metric used in capital budgeting to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows equal to zero.
Salvage Value
The projected final worth of an asset at the end of its period of use.
Operating Costs
The expenses related to the day-to-day activities of a business, such as wages and rent.
- Estimate annual cost savings and revenue requirements for investment justification.
Verified Answer
ZK
Zybrea KnightJun 05, 2024
Final Answer :
Factor of the internal rate of return = Investment required ÷ Annual net cash inflow
{{[a(5)]:#,###.000}} = ${{[a(3)]:#,###}} ÷ Annual net cash inflow
Annual net cash inflow = ${{[a(3)]:#,###}} ÷ {{[a(5)]:#,###.000}} = ${{[a(7)]:#,###}}
{{[a(5)]:#,###.000}} = ${{[a(3)]:#,###}} ÷ Annual net cash inflow
Annual net cash inflow = ${{[a(3)]:#,###}} ÷ {{[a(5)]:#,###.000}} = ${{[a(7)]:#,###}}
Learning Objectives
- Estimate annual cost savings and revenue requirements for investment justification.