Question

ABC Corporation is considering the purchase of a machine that would cost $220,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $20,500. By reducing labor and other operating costs, the machine would provide annual cost savings of $35,000. The company requires a minimum pretax return of 9% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

a. $(745)
b. $(95,000)
c. $(16,092)
d. $9,665

Answer 1

a. $(745)

Step-by-step explanation:

The computation of the net present value is shown below;

As we know that

Net present value = Present value of Cash inflow - Present value of Cash outflow

= ($35,000 × 5.995+ $20,500 × 0.46) - $220,000

= -$745

We simply deduct the cash outflow present value from the cash inflow present value so that the net present value could come

hence, the option a is correct