Sibble Corporation is considering the purchase of a machine that would cost $320

Question

Sibble Corporation is considering the purchase of a machine that would cost $320,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $57,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $62,000. The company requires a minimum pretax return of 12% 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.

The net present value of the proposed project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

Sibble Corporation is considering the purchase of a machine that would cost $320,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $57,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $62,000. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes.)

Explanation / Answer

STATEMENT SHOWING NPV Particulars Yr PFV Amount PV Annual Cost Savings 01-06 4.111 62000 254882 Add: Terminal Value 6 0.5067 57000 28881.9 Less: Cost of Machine 0 1 -320000 -320000 NPV -36236.1

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