Sibble Corporation is considering the purchase of a machine that would cost $310,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $40,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $74,000. 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 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.)
Solution
NPV = -310000 + 40000/ ( 1.12)^5 + 74000/(1.12) +Â Â 74000/(1.12)^2 +74000 /(1.12)^3 +74000/(1.12)^4 + 74000/(1.12)^5
= ?$20,550
.
Sibble Corporation is considering the purchase of a machine that would (1).docx
1. Sibble Corporation is considering the purchase of a machine that would cost $310,000 and would
last for 5 years. At the end of 5 years, the machine would have a salvage value of $40,000. By
reducing labor and other operating costs, the machine would provide annual cost savings of
$74,000. 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 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.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount
factor(s) using tables.
Solution
NPV = -310000 + 40000/ ( 1.12)^5 + 74000/(1.12) +Â Â 74000/(1.12)^2 +74000 /(1.12)^3
+74000/(1.12)^4 + 74000/(1.12)^5
= ?$20,550
