The management of Shiney Company, a not-for profit wholesale distributor of suntan products, is considering the purchase of a $25,000 machine that would reduce operating costs in its warehouse by $4,000 per year. At the end of the machine’s 10-year useful life, it will have no scrap value. The organization’s required rate of return is 12%. Ignore income taxes as this is a not-for profit organization.
-Determine the net present value of the investment in the machine using the model shown in class.
-What is the difference between the total, undiscounted cash inflows and cash outflows over the entire life of the machine?
The Fixem Up Health System required rate of return is 15%. The firm can purchase a new automated phone system for a one time a cost of $40,350. The new service would save $15,000 per year in labor and have would be operational for the next four years with no salvage value.
-Compute the net present value of the service.
-Is the service an acceptable investment? Explain.
-Use one of the decision models presented in the course and go through the decision process step by step.