Janes, Inc., is considering the purchase of a machine that would cost $540,000 a
ID: 2604121 • Letter: J
Question
Janes, Inc., is considering the purchase of a machine that would cost $540,000 and would last for 10 years, at the end of which, the machine would have a salvage value of $54,000. The machine would reduce labor and other costs by $114,000 per year. Additional working capital of $8,000 would be needed immediately, all of which would be recovered at the end of 10 years. The company requires a minimum pretax return of 18% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. Required: Determine the net present value of the project
Explanation / Answer
Determine the net present value of the project
Year Cash flow Present value factor @18% present value of cash flows 0 (540000) 1 (540000) 0 (8000) 1 (8000) 1-10 114000 4.494 512316 10 54000 0.191 10314 10 8000 0.191 1528 Net present value (23842)Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.