Question 14 Nevland Corporation is considering the purchase of a machine that wo

Question

Question 14

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

Question 47 Barredo Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows Direct materials Direct labor Variable manufacturing overhead Pixed manufacturing overhead Pixed selling expense Pixed administrative expense Salen commiusion Variable administrative expense Average Cost per Unit 6.60 3.65 1.65 2.80 0-70 0.40 0.50 0.45 If 4,000 units are sold, the variable cost per unit sold is closest to $16.75 $12.85 $11.90 $14.70

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=44000/1.19+44000/1.19^2+...........+44000/1.19^6+18000/1.19^6

=$44000*3.410+$18000*0.352

=$156376

NPV=Present value of inflows-Present value of outflows

=$156376-$130,000

=$26,376(Approx)
  

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