(prob. 5.32) the industrial engineering department for invade air fresheners has found that a new packing machine should save $45,000 for each of the next 8 years. the machine will require a major overhaul at the end of 5 years costing $12,000. the machine’s expected salvage value after 8 years is 7.5% of its original cost. if money is worth 5%, determine the amount invade should be willing to pay for the machine.

It will be willing to pay up to $297,853.46

Explanation:

First, we calculate  present value of the cash saving

C45000

time8

rate0.05

PV$290,844.57

Then, the present Value of the salvage value

Maturity   7.50 %

time   8.00

rate   0.05

PV   5.08 %

This is calculate as a percent, because we are not given with a cash value.

Last, the 12,000 major overhaul

Maturity   -12,000.00

time   8.00

rate   0.05

PV   -8,122.07

This PV is negative as it is a cash out-flow

Lastly, we add them all:

290,844.57 + 0.0508PV - 8,122.07 = PV

And solve for PV

290,844.57 - 8,122.07 = PV - 0.0508PV

282,722.5‬ = 0.9492PV

282,722.5/0.9492 = PV

PV = 297,853.455541 = 297,853.46

decentralization can the employees to get more involved in the business decision making

answer; buying the bill at a discount from the face value to be received at maturity;