Almendarez Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. At the end of 5 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 $39,000. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes.) The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.) a. $ (45,000) b. $ (3,063) c. $11,983d. $ (18,410)

Question

Business

Kristin Massey

4 June, 17:37

Almendarez Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. At the end of 5 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 $39,000. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes.) The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.) a. $ (45,000) b. $ (3,063) c. $11,983d. $ (18,410)

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Answers (1)

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Stone · Answer 1

The correct answer is B.

Explanation:

Giving the following information:

Almendarez Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. At the end of 5 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 $39,000. The company requires a minimum pretax return of 13% on all investment projects.

To calculate the net present value we need to use the following formula:

NPV = - Io + ∑[Cf / (1+i) ^n]

Cf = cash flow

NPV = - 3,058