Question

Ignore income taxes in this problem.) Janes, Inc., is considering the purchase of a machine that would cost $530,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $53,000. The machine would reduce labor and other costs by $113,000 per year. Additional working capital of $7,000 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretax return of 12% on all investment projects. Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables. Required: Determine the net present value of the project. (Negative amount should be indicated by a minus sign.)

Answer 1

The answer is "- $42,012.87"

Step-by-step explanation:

The formula for calculating the Net Present value:

`\text{ \bold{Net Present value} = Labour costs saving value +Operating capital value disclosed} \\`
`+ \text{Surplus value-machine cost- Working capital} \\ \text{current value Net -Working capital}`

`= \$ 113000 * 4.11141 +\$ 7000 * 0.50663 + \$ 53000 * 0.50663 - \$ 530000 - \$ 7000 \\\\= \$ 464,589.33 +\$ 3,546.41 + \$ 26,851.39 - \$ 530000 - \$ 7000 \\\\= \$ 494,987.13 - \$ 537,000\\\\= - \$ 42,012.87`