Sibble Corporation is considering the purchase of a machine that would cost $300

Question

Sibble Corporation is considering the purchase of a machine that would cost $300,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $40,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $70,000. 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.) $7,650 $24,970 $47,650 $70,330

Explanation / Answer

Calculation of NPV of the Project:

Year Inceremental Cash Flows PVF @ 12% PV 0 -300000 1 -300000 1 70000 0.8929 62500 2 70000 0.7972 55804 3 70000 0.7118 49825 4 70000 0.6355 44485 5 110000 0.5674 62417 -24970

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