Janes, Inc., is considering the purchase of a machine that would cost $460,000 a
ID: 2373733 • Letter: J
Question
Janes, Inc., is considering the purchase of a machine that would cost $460,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $56,000. The machine would reduce labor and other costs by $116,000 per year. Additional working capital of $2,000 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretax return of 17% on all investment projects. (Ignore income taxes.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.
Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.
Explanation / Answer
NPV = -460000 + ( 116000/0.17*(1-1/1.7^6)) + 56000/1.17^6 = -2183 .60734
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