QUESTION 5 (Ignore income taxes in this problem.) Sibble Corporation is consider

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QUESTION 5

(Ignore income taxes in this problem.) Sibble Corporation is considering the purchase of a machine that would cost $310,000 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 $74,000. The company requires a minimum pretax return of 12% on all investment projects.

Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables.

The net present value of the proposed project is closest to: (Round your final answers to the nearest dollar amount.)

$(65,910)

$(43,230)

$(20,550)

$(3,230)

7 points   

QUESTION 6

Ignore income taxes in this problem.) Charley has a typing service. He estimates that a new computer will result in increased cash inflow $2,300 in Year 1, $2,700 in Year 2 and $3,900 in Year 3.

Click here to view Exhibit 8B-1 to determine the appropriate discount factor(s) using tables.

If Charley's required rate of return is 8%, the most that Charley would be willing to pay for the new computer would be: (Round your intermediate and final answers to the nearest dollar amount.)

$6,925

$4,614

$6,744

$7,541

(Ignore income taxes in this problem.) Sibble Corporation is considering the purchase of a machine that would cost $310,000 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 $74,000. The company requires a minimum pretax return of 12% on all investment projects.

Explanation / Answer

1)Present value of cash flow = (PVAF@12%,5 *ANNual cash flow) +(PVF@12%,5 * Salvage)

                                    =(3.60478 *74000) +    (.56743 * 40000)

                                  = 266753.44 + 22697.2

                                = 289450.64

NPV =Present value -Initial investment

        = 289450.64 - 310000

          = $ - 20550

correct option is "C"

2)Price to pay = (PVF@8%,1 *CF1 ) +(PVF@8%,2 *CF2) +(PVF@8%,3*CF3)

                = (.92593 * 2300) +(.85734* 2700) +(.79383 * 3900)

               = 2129.64+ 2314.82+ 3095.94

              = 7540.39 (Approx 7541)

correct option is "D"

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