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The management of Z Taylor Company is considering the purchase of a machine that

ID: 2533493 • Letter: T

Question

The management of Z Taylor Company is considering the purchase of a machine that would cost $320,000 would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $76,000 per year. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes in this problem.)

Click here to view Exhibit 11B-1 and Exhibit 11B-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.)

a. -$46,020

b. -$23,340

c. -$68,700

d. -$6020

The management of Z Taylor Company is considering the purchase of a machine that would cost $320,000 would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $76,000 per year. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes in this problem.)

Explanation / Answer

Net present value = Present value of cash inflow-Present value of cash outflow

= (76000*3.605)-320000

Net present value = -46020

so answer is a) -46020