The management of Urbine Corporation is considering the purchase of a machine th
ID: 2497166 • Letter: T
Question
The management of Urbine Corporation is considering the purchase of a machine that would cost $400,000 would last for 10 years, and would have no salvage value. The machine would reduce labor and other costs by $60,000 per year. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes in this problem.)
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.)
$86,240
$34,440
$74,440
$62,640
The management of Urbine Corporation is considering the purchase of a machine that would cost $400,000 would last for 10 years, and would have no salvage value. The machine would reduce labor and other costs by $60,000 per year. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes in this problem.)
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.)
$86,240
$34,440
$74,440
$62,640
Explanation / Answer
Answer NPV = -$ 74440
Year Cash Flows PV Factor @ 13% PV of Cash Flows 0 -$400,000 1 -$400,000 1 $60,000 0.885 $53,100 2 $60,000 0.783 $46,980 3 $60,000 0.693 $41,580 4 $60,000 0.613 $36,780 5 $60,000 0.543 $32,580 6 $60,000 0.48 $28,800 7 $60,000 0.425 $25,500 8 $60,000 0.376 $22,560 9 $60,000 0.333 $19,980 10 $60,000 0.295 $17,700 Total PV (NPV) -$74,440Related Questions
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