Reference no: EM133378278

Question: Let's say that Saint Andrews Chips considers a 4th option regarding the industrial grade bagging machine. Saint Andrews Chips engineers have determine that if the ?rm buys the machine {without the service contract} a method can be devised by their maintenance organization to preserve and actually enhance the capability of the machine over time, By reinvesting 15% of the annual cost savings back into new machine parts, the engineers can increase the cost savings at a 5% annual rate. For example, at the end of year one, 15% of the 525.000 cost savings ($3,750) is reinvested in the machine; the net cash ?ow is thus $21,250, Next year, the cash flow from cost savings grows by 5% to 826,25 0 gross, or $22,312 net of the 15% reinvestment. As long as the 15% reinvestment continues, the cash ?ows continue to grow at 5% in perpetuity, Determine the net present value of this option and select the answer that comes the c1osest to your sqution.