O ezto.mheducation.com/hm.tpx Clairmont Corporation is considering the purchase
ID: 2580303 • Letter: O
Question
O ezto.mheducation.com/hm.tpx Clairmont Corporation is considering the purchase of a machine that would cost $160,000 and would last for 4 years. At the end of 4 years, the machine would have a salvage value of $17,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $42,000. The company requires a minimum pretax return of 7% 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.) o $(4,775) O $13,695 O $8,000 $(20.122) References Multiple ChoiceExplanation / Answer
Net present value = Present value of cash inflows - Present value of cash outflows
Present value of cash inflows = (42,000*0.935) + (42,000*0.873) + (42,000*0.816) + [(42,000+17,000)*0.763]
= 39,270 + 36,666 + 34,272 + 45,017
= 155,225
Present value of cash outflows = 160,000
Net present value = 155,225 - 160,000
= (4,775)
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