Question

Banderas corporation is considering the purchase of a machine that would cost $330,000 and would last for 9 years, the machine would have a salvage value of $79,000.By reducing labor and other operatin costs, the machine would provide annual cost savings of $59,000. The company requires a minimum pretax return of 12% on allinvestment project. The net value of the proposed project is closest to:___________.

Answer 1

NPV = $ 12,854.93

Step-by-step explanation:

Net Present Value (NPV) : This is one of the techniques available to evaluate the feasibility of an investment project. The NPV of a project is the difference between the present value of the cash inflows and the cash outflows of the project.

Net Present Value of the proposed project

Present Value (PV) of annual cash inflow = A× (1- (1+r)^(-n) )/r

A- annual cash inflow - 59,000, r-12%, n- 9

PV of cash inflow = 59,000× ((1- (1.012)^(-9))/0.12

= 314366.7377

PV of Scrap value = F× (1+r)^(-n)

F- scrap value - 79,000

= 79,000 × (1.12)^(-9)

= 28,488.19

NPV = 314,366.7377 + 28,488.19 - 330,000 =

NPV = $ 12,854.93