(Ignore income taxes in this problem.) Sibble Corporation is considering the pur
ID: 2504792 • Letter: #
Question
(Ignore income taxes in this problem.) 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 $52,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $78,000. The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to:
a. -$59,321 b. -$36,810 c. -$88,810 d. -$44,226Explanation / Answer
NPV = 78000PVIFA(12%,5) + 52000PVIF(12%,5) - 370000
= 78000*3.605 + 52000*0.567 - 370000
= - 59321
Answer: A) -$59321
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