(Ignore income taxes in this problem.) Sibble Corporation is considering the pur
ID: 2483458 • Letter: #
Question
(Ignore income taxes in this problem.) Sibble Corporation is considering the purchase of a machine that would cost $320,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $50,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $60,000. The company requires a minimum pretax return of 9% on all investment projects.
Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables.
The net present value of the proposed project is closest to: (Round your final answers to the nearest dollar amount.)
(Ignore income taxes in this problem.) Sibble Corporation is considering the purchase of a machine that would cost $320,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $50,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $60,000. The company requires a minimum pretax return of 9% on all investment projects.
Explanation / Answer
NPV => [60000*PVIAF(9%,6) + 50000 * PVIF (9%,6) ] -320000
NPV=> [ (60000 * 4.49 ) + (50000 * 0.596) ] - 320000
NPV => -$20800
NPV is negative, project is not benefecial.
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