The management of Urbine Corporation is considering the purchase of a machine th
ID: 2655350 • Letter: T
Question
The management of Urbine Corporation is considering the purchase of a machine that would cost $370,000 would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $90,000 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 13B-1 and Exhibit 13B-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.)
$45,550
$5,550
$68,230
$22,870
The management of Urbine Corporation is considering the purchase of a machine that would cost $370,000 would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $90,000 per year. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes in this problem.)
Explanation / Answer
NPV = 90,000 x PVAF(12%, 5years) - 370,000 = (90,000 x 3.605) - 370,000 = -$45,550. Thus, Option A.
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