Accounting Questions

(Ignore income taxes in this problem.) Gillaspie, Inc., is considering the purchase of a machine that would cost $300,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $51,000. The machine would reduce labor and other costs by $86,000 per year. Additional working capital of $10,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 13% on all investment projects.

99. The combined present value of the working capital needed at the beginning of the project and the working capital released at the end of the project is closest to:

A. -$8,420

B. $25,170

C. -$4,570

D. $0

C

50. (Ignore income taxes in this problem) Lett Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 7 years. The company uses a discount rate of 15% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is -$578,739. Management is having difficulty estimating the salvage value of the aircraft.

To the nearest whole dollar how large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive?

A. $578,739

B. $86,811

C. $3,858,260

D. $1,539,199

D