The management of Kinion Corporation is considering the purchase of a machine th

Question

The management of Kinion Corporation is considering the purchase of a machine that would cost $170,000, would last for 4 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 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 the tables provided. Required: Determine the net present value of the project.

Explanation / Answer

Net present value: Particulars Years Amount PV @12% PV Initial Investment 0 $ (170,000.00) 1 $ (170,000.00) Annual cost savings 1-4 $      60,000.00 3.0373 $    182,238.00 NPV= $      12,238.00

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