Riveros, Inc., is considering the purchase of a machine that would cost $120,000

Question

Riveros, Inc., is considering the purchase of a machine that would cost $120,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $29,000. The machine would reduce labor and other costs by $25,000 per year. Additional working capital of $9,000 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:

A) -$18,050

B) -$63,683

C) -$10,336

D) -$16,942

Explanation / Answer

NPV = {Net Period Cash Flow/(1+R)^T} - Initial Investment

where R is the rate of return and T is the number of time periods.

D) -$16,942

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