Corin Corporation is considering the purchase of a machine that would cost $420,

Question

Corin Corporation is considering the purchase of a machine that would cost $420,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $97,000. The machine would reduce labor and other costs by $76,000 per year. The company requires a minimum pretax return of 16% on all investment projects. (Ignore income taxes.) Round answers to the nearest dollar and use a minus sign for negative numbers.

-Interest Rate
(Rate, I, I/YR)%

-Nper, N

-PMT$

-PV$

-FV$

-Net present value

-Should be machine be purchased?

Explanation / Answer

-Interest Rate = 16% -PMT$ Incremental cash in Year 1-7 = $76,000 per year Incremental cash in Year 8 = $76,000 +$97,000 = 173,000 per year NPV = -$420,000 + $76,000/1.16 + $76,000/1.16^2....+ 173,000/1.16^8 =($60,299.62) No, the machine should not be purchased since it has negative NPV

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