how to calculate a company’s present value of the annual cost savings
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Question
The management of Melchiori Corporation is considering the purchase of a machine that would cost $440,000, would last for 12 years, and would have no salvage value. The machine would reduce labor and other costs by $124,000 per year. The company requires a minimum pretax return of 15% on all investment projects. (Ignore income taxes.)
The present value of the annual cost savings of $124,000 is closest to:
- $183,448
- $672,204
- $1,963,462
- $1,488,000
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