Question

Dokes, Inc. is considering the purchase of a machine that would cost $440,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $62,000. The machine would reduce labor and other costs by $81,000 per year. Additional working capital of $8,000 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 13% on all investment projects.

What is the net present value of the project?

Answer 1

	Years	Amount	13% Factor	Present Value
Initial Investment	Now	(440,000)	1.000	(440,000.00)
Annual net cash inflows	1 -to-9	81,000.00	5.132	415,692.00
Working capital invested	Now	(8,000.00)	1.000	(8,000.00)
Working capital released	9	8,000.00	0.333	2,664.00
Salvage value	9	62,000.00	0.333	20,646.00
Net Present Value				(8,998.00)
5.132 in 13% was obtain by adding up all the 13 percent factors from years 1 thru 9.

Answer 2

-$27,030

Answer 3

$ 103,500