Sibble Corporation is considering the purchase of a machine that would cost $370

Question

Sibble Corporation is considering the purchase of a machine that would cost $370,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $40,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $90,000. The company requires a minimum pretax return of 12% 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.

The net present value of the proposed project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

?$22,870

?$45,550

?$68,230

?$5,550

Explanation / Answer

NPV = 90000PVIFA(12%,5) + 40000PVIF(12%,5) - 370000

= 90000*3.605 + 40000*0.567 - 370000

= - 22870

Answer: A) -$22870

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