Janes, Inc., is considering the purchase of a machine that would cost $430,000 a

Question

Janes, Inc., is considering the purchase of a machine that would cost $430,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $43,000. The machine would reduce labor and other costs by $103,000 per year. Additional working capital of $5,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.)

Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.

Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Janes, Inc., is considering the purchase of a machine that would cost $430,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $43,000. The machine would reduce labor and other costs by $103,000 per year. Additional working capital of $5,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.)

Explanation / Answer

Net present Value = 103000PVIFA(11%,5) + (43000+5000) PVIF(11%,5) - 430000- 5000

= - $25848

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.