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5 September, 12:41

pany is considering the purchase of a new bubble packaging machine. If the machine will provide $15,000 annual savings for 12 years and can be sold for $48,000 at the end of the period, what is the present value of the machine investment at a 15% interest rate with savings realized at year end

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  1. 5 September, 15:26
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    Present Value = $74,018.97

    Explanation:

    Giving the following information:

    The machine will provide $15,000 annual savings for 12 years and can be sold for $48,000 at the end of the period.

    Interest rate = 15%

    To determine the present value of the savings, first, we need to determine the future value at the rate provided.

    We need to use the following formula:

    FV = {A*[ (1+i) ^n-1]}/i

    A = annual save

    FV = {12,000*[ (1.15^12) - 1]} / 0.15

    FV = 348,020 + 48,000 = $396,020

    Now, we can calculate the present value:

    PV = FV / (1+i) ^n

    PV = 396,020/1.15^12 = $74,018.97
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