Question

Almendarez Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. At the end of 5 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 $39,000. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes.)The net present value of the proposed project is closest to: (Round your intermediate calculations and final answer to the nearest whole dollar amount.)a. $(45,000)b. $(3,063)c. $11,983d. $(18,410)

Answer 1

The correct answer is B.

Step-by-step explanation:

Giving the following information:

Almendarez Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. At the end of 5 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 $39,000. The company requires a minimum pretax return of 13% on all investment projects.

To calculate the net present value we need to use the following formula:

NPV= -Io + ∑[Cf/(1+i)^n]

Cf= cash flow

NPV= -3,058