ABC Limited's required rate of return is 10%. The company is considering the purchae of three machines, as indicated below. Consider each machine independently.
Required:
1. Machine A will cost $75,000 and have a life of 15 years. Its salvage value will be $3,000 and cost savings are projected at $10,500 per year. Compute the machine's net present value.
2. How much will ABC Limited be willing to pay for Machine B if the machine promises annual cash inflows of $15,000 per year for 8 years?
3. Machine C has a projected life of 10 years. What is the machine's internal rate of return if it costs $90,000 and will save $18,000 annually in cash operating costs? Would you recommend purchase? Explain