The management of Melchiori Corporation is considering the purchase of a machine
ID: 2361492 • Letter: T
Question
The management of Melchiori Corporation is considering the purchase of a machine that would cost $380,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $118,000 per year. The company requires a minimum pretax return of 14% on all investment projects. (Ignore income taxes.)
The present value of the annual cost savings of $118,000 is closest to: (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)
The management of Melchiori Corporation is considering the purchase of a machine that would cost $380,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $118,000 per year. The company requires a minimum pretax return of 14% on all investment projects. (Ignore income taxes.)
Explanation / Answer
I have a similar problem I just did for my managerial class.
The machine would reduce costs at 118,000 and using the NPV of Annuity because this is issued from years 1-6 the NPV at 14% would be 3.889 so that would bring the 118000 x 3.889= 458902.
The correct answer is 458,902
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