The management of Z Taylor Company is considering the purchase of a machine that
ID: 2533493 • Letter: T
Question
The management of Z Taylor Company is considering the purchase of a machine that would cost $320,000 would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $76,000 per year. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes in this problem.)
Click here to view Exhibit 11B-1 and Exhibit 11B-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.)
a. -$46,020
b. -$23,340
c. -$68,700
d. -$6020
The management of Z Taylor Company is considering the purchase of a machine that would cost $320,000 would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $76,000 per year. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes in this problem.)
Explanation / Answer
Net present value = Present value of cash inflow-Present value of cash outflow
= (76000*3.605)-320000
Net present value = -46020
so answer is a) -46020
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