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Problem: Capital Budgets:

Rambus Inc. would like to purchase a production machine for $325,000. The machine is expected to have a life of three years, and a salvage value of $50,000. Annual maintenance costs will total $12,500. Annual savings are predicted to be $112,500. The company's required rate of return is 12%.

Factors: Present Value of $1 (r = 12%)

Year 0 1.0000

Year 1 0.8929

Year 2 0.7972

Year 3 0.7118

Questions:

(1) Using the Present Value Factors for $1, calculate the net present value of this investment (ignoring taxes).

(2) Based on your answer in requirement 1, should Rambus purchase the production machine?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93053333

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