Almendarez Corporation is considering the purchase of a machine that would cost $120,000 and would last for 4 years. At the end of 4 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $32,000. The company requires a minimum pretax return of 10% on all investment projects. (Ignore income taxes.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided.
The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)
Multiple Choice
$(6,266)
$15,186
$(8,000)
$(21,613)
Present value of annual cost savings | 101440 | =32000*3.17 | |
Present value of salvage value | 12294 | =18000*0.683 | |
Less: Investment cost | -120000 | ||
Net present value | -6266 | ||
Option 1 is correct | |||
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