80% Sat 5:58PM a ¡ instructions I help n 10 (of 21) 10. 10.00 points (ignore inc

Question

80% Sat 5:58PM a ¡ instructions I help n 10 (of 21) 10. 10.00 points (ignore income taxes in this problem.) Janes, Inc., is considering the purchase of a machine that would cost $510,000 and would last for 5 years, at the end of which, the of $7,000 would be needed mediately all of which would be recovered at the end of 5 years. The company requires a mnimum pretax retum of 17% on all investment projects. Click here to view Exhibit 88-1 and Exhibit 88-2 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.)

Explanation / Answer

Net Present Value $           -98,864 Working: Calcualtion of Net Present Value is as follows: Year 0 1 2 3 4 5 Total Cost of machine $        -5,10,000 Net Working capital $              -7,000 Salvage value of machine $       61,000 Annual saving $       1,21,000 $   1,21,000 $   1,21,000 $   1,21,000 $   1,21,000 Release of working capital $         7,000 Total Cash flows $        -5,17,000 $       1,21,000 $   1,21,000 $   1,21,000 $   1,21,000 $   1,89,000 Discount factor                 1.0000               0.8547           0.7305           0.6244           0.5337           0.4561 Present Value $        -5,17,000 $       1,03,419 $       88,392 $       75,549 $       64,572 $       86,205 $ -98,864

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