Smith Corporation is involved in the evaluation of a new computer-integrated manufacturing system. The system has a projected initial cost of $1,000,000 . It has an expected life of six years, with no salvage value, and is expected to generate annual cost savings of $250,000 . Based on Smith Corporation's analysis, the project has a net present value of $57,625. Refer to Smith Corporation. What
discount rate did the company use to compute the net present value? Present value tables or a financial calculator are required.
a. 10%
b. 11%
c. 12%
d. 13%
B
NPV = $ 57,625
Initial Cost = $1,000,000
PV of Cash Inflows = $1,057,625
Annual Cost Savings =$ 250,000
$1,057,625/$250,000 = 4.2305 PV of Annuity Constant
At 6 years, the constant corresponds to a discount rate of 11%.
You might also like to view...
Ad hoc is a Latin word, meaning ________
A) out of chaos B) from one, many C) by that very act D) with respect to a specific purpose E) and the rest
Answer the following statements true (T) or false (F)
1. Agreeable people are easy to work with but they are not forgiving or trusting. 2. Our behavior affects how we perceive things, as well as our attitudes and personality. 3. Everyone is subject to perceptional bias. 4. As a conservative, Pele exclusively watches news shows that supports his views. As a liberal, Beatrice exclusively watches news shows that support her views. This is an example of frame of reference bias.
When assembling a news pitch, public relations professionals must first do their homework
Indicate whether the statement is true or false
Identifying the primary and secondary activities that comprise a company's value chain
A. is called benchmarking. B. indicates whether a company's resource strengths will ultimately translate into greater value for shareholders. C. is the first step in understanding a company's cost structure (since each activity in the value chain gives rise to costs). D. reveals whether a company's resource strengths are well-matched to the industry's key success factors. E. is called resource value analysis.