(Ignore income taxes in this problem.) Riveros, Inc., is considering the purchas

Question

(Ignore income taxes in this problem.) Riveros, Inc., is considering the purchase of a machine that would cost $124,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $31,000. The machine would reduce labor and other costs by $25,400 per year. Additional working capital of $9,400 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 18% on all investment projects. The net present value of the proposed project is closest to:

Explanation / Answer

Net present value now 1--7 8 investement -124000 working capital -9,400 9,400 salvage value 31,000 savings in cost 25,400 25,400 total cash flow -133400 25400 65800 discount factor at 18% 1.000 3.812 0.266 present value -133400 96824.8 17502.8 Net present value -19,072

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