Question 8 Nevland Corporation is considering the purchase of a machine that wou

Question

Question 8

Nevland Corporation is considering the purchase of a machine that would cost $130,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $44,000. The company requires a minimum pretax return of 19% on all investment projects. The net present value of the proposed project is closest to (Ignore income taxes.):

$38,040
      
$26,376
      
$74,902
      
$20,040

Explanation / Answer

Present value of annual cash flows 150040 =44000*3.41 present value of salvage value 6336 =18000*0.352 Total present value 156376 Less: Initial investment 130000 Net present value 26376 Option 2 is correct

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