Oriole, Inc. is considering the purchase of a new machine for $640000 that has an estimated useful life of 5 years and no salvage value. The machine will generate net annual cash flows of $112000. 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 increase in cash flows per year
resulting from reduced downtime must be at least
Year
1
2
3
4
Present Value PV of an Annuity
of 1 at 8% of 1 at 8%
.926
.926
.857
1.783
.794
2.577
.735
3.312
.681
3.993
5
O $24389 per year.
O $47968 per year.
O $19568 per year.
$48280 per year.
C
M M
No