Proctor and Gamble Corporation is considering the purchase of a machine that wou
ID: 2590292 • Letter: P
Question
Proctor and Gamble Corporation is considering the purchase of a machine that would cost $400,000 would last for 10 years, and would have no salvage value. The machine would reduce labor and other costs by $60,000 per year. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes in this problem.)
Click here to view Exhibit 13B-1 and Exhibit 13B-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.)
$34,440
$86,240
$74,440
$62,640
Proctor and Gamble Corporation is considering the purchase of a machine that would cost $400,000 would last for 10 years, and would have no salvage value. The machine would reduce labor and other costs by $60,000 per year. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes in this problem.)
Explanation / Answer
Present value of inflows=$60000*Present value of annuity factor(13%,10)
=$60000*5.426
which is equal to
=$325560
NPV=Present value of inflows-Present value of outflows
=$325560-$400,000
-$74440(Approx)(C)(Negative)
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