Capital Budgeting Questions
Homework-?-Capital ?Budgeting ?
(Ignore ?income ?taxes ?in ?this ?problem) ? ?Claire ?Corporation ?is ?considering ?the ?
purchase ?of ?a ?machine ?that ?would ?cost ?$520,000 ?and ?would ?last ?for ?7 ?years. ?
Working ?capital ?is ?needed ?now ?for ?$50,000. ?At ?the ?end ?of ?7 ?years, ?the ?machine ?
would ?have ?a ?salvage ?value ?of ?$96,000. ? ?The ?machine ?would ?reduce ?labor ?and ?
other ?costs ?by ?$68,000 ?per ?year. ? ?The ?company ?requires ?a ?minimum ?pretax ?return ?
of ?9% ?on ?all ?investment ?projects, ?and ?at ?the ?end ?of ?the ?life ?of ?the ?project, ?the ?
working ?capital ?would ?be ?released. ? ?Complete ?the ?following ?worksheet ?for ?the ?Net ?
Present ?Value ?of ?the ?project. ? ?Should ?the ?company ?accept ?this ?project? ?
? ? ? ? ? ?Item ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Year(s) ? ? ? ? ? ? ? ? ? ? ? ? ? ?Amount ? ? ? ? ? ? ? ? ? ? ? ? ?9% ?Factor ? ? ? ? ? ? ? ? ? ? ?Present ?Value ?
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Homework-?-Capital ?Budgeting ?
(Ignore ?income ?taxes ?in ?this ?problem) ? ?Claire ?Corporation ?is ?considering ?the ?
purchase ?of ?a ?machine ?that ?would ?cost ?$520,000 ?and ?would ?last ?for ?7 ?years. ?
Working ?capital ?is ?needed ?now ?for ?$50,000. ?At ?the ?end ?of ?7 ?years, ?the ?machine ?
would ?have ?a ?salvage ?value ?of ?$96,000. ? ?The ?machine ?would ?reduce ?labor ?and ?
other ?costs ?by ?$68,000 ?per ?year. ? ?The ?company ?requires ?a ?minimum ?pretax ?return ?
of ?9% ?on ?all ?investment ?projects, ?and ?at ?the ?end ?of ?the ?life ?of ?the ?project, ?the ?
working ?capital ?would ?be ?released. ? ?Complete ?the ?following ?worksheet ?for ?the ?Net ?
Present ?Value ?of ?the ?project. ? ?Should ?the ?company ?accept ?this ?project? ?
? ? ? ? ? ?Item ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Year(s) ? ? ? ? ? ? ? ? ? ? ? ? ? ?Amount ? ? ? ? ? ? ? ? ? ? ? ? ?9% ?Factor ? ? ? ? ? ? ? ? ? ? ?Present ?Value ?
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Homework-Capital Budgeting
(Ignore income taxes in this problem) Claire Corporation is considering the
purchase of a machine that would cost $520,000 and would last for 7 years.
Working capital is needed now for $50,000. At the end of 7 years, the machine
would have a salvage value of $96,000. The machine would reduce labor and
other costs by $68,000 per year. The company requires a minimum pretax return
of 9% on all investment projects, and at the end of the life of the project, the
working capital would be released. Complete the following worksheet for the Net
Present Value of the project. Should the company accept this project?
Item
Year(s)
Amount
9% Factor
Present Value
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