(Ignore income taxes in this problem.) Lebert, Inc., is considering the purchase

Question

(Ignore income taxes in this problem.) Lebert, Inc., is considering the purchase of a machine that would cost $380,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $49,000. The machine would reduce labor and other costs by $96,000 per year. Additional working capital of $6,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 18% on all investment projects. The net present value of the proposed project is closest to

Explanation / Answer

Present value of saving=96000*3.812=365952

Present value of salvage=49000*.314=15386

Present value of working capital=6000*.314=1884

Total inflow. = 383222

Less:initial outlay-

Cost of machine 380000

Working capital. 6000. 386000

Net present value -2778

Thus, net present value is - 2778

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