Janes, Inc., is considering the purchase of a machine that would cost $670,000 a

Question

Janes, Inc., is considering the purchase of a machine that would cost $670,000 and would last for 10 years, at the end of which, the machine would have a salvage value of $57,000. The machine would reduce labor and other costs by $117,000 per year. Additional working capital of $3,000 would be needed immediately, all of which would be recovered at the end of 10 years. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes.) Determine the net present value of the project (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

Net present value = -$673,000 + $ 117,000/(1+0.13)1 +   $ 117,000/(1+0.13)2 + $ 117,000/(1+0.13)3 + $ 117,000/(1+0.13)4 + $ 117,000/(1+0.13)5 + $ 117,000/(1+0.13)6 + $ 117,000/(1+0.13)7 + $ 117,000/(1+0.13)8 + $ 117,000/(1+0.13)9 + $ 177,000/(1+0.13)10

NPV = -$ 20,454.21

Year cash flows 0 ($673,000) 1 $117,000 2 $117,000 3 $117,000 4 $117,000 5 $117,000 6 $117,000 7 $117,000 8 $117,000 9 $117,000 10 $177,000

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