Question

ABC Corporation is considering the purchase of a machine that would cost $170,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $19,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $41,000. The company requires a minimum pretax return of 11% 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 neare

Answer 1

-$7,193

Step-by-step explanation:

The computation of the net present value is shown below:

Year Cash Inflows PV factor at 11% Present value

0 $170,000 1 $170,000 (A)

1 $41,000 0.9009009 $36,936.94

2 $41,000 0.8116224 $33,276.52

3 $41,000 0.7311914 $29,978.85

4 $41,000 0.6587310 $27,007.97

5 $41,000 0.5934513 $24,331.50

5 $19,000 0.5934513 $11,275.58

Total $162,807.35 (B)

Net Present Value (NPV) -$7,193 (B - A)

It is a difference between the cash inflow and the cash outflows