Skinner, Inc. operates a manufacturing plant in Cincinnati. The production super

Question

Skinner, Inc. operates a manufacturing plant in Cincinnati. The production supervisor has requested a new packaging machine. The machine would cost $630,000 and would last for 9 years, at the end of which, the machine would have a salvage value of $53,000. The machine would reduce labor and other costs by $113,000 per year. Additional working capital of $7,000 would be needed immediately, all of which would be recovered at the end of 9 years. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables Required Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.) Net present value

Explanation / Answer

Calculate net present value :

Net present value = (Present value of cash inflow)-(present value of cash outflow)

= (113000*5.328+53000*.361+7000*.361)-(630000+7000)

Net present value = (13276)

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