contestada

Sibble Corporation is considering the purchase of a machine that would cost $330,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $50,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $76,000. The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to:A. -$56,020B. -$6,020C. -$48,764D. -$27,670

Respuesta :

ahmedgodtrust

Answer:

Year Cashflow DF@12%              PV

           $                           $

0        (330,000)         1  (330,000)

1-5          76,000             3.6048 273,965

5               50,000              0.5674           28,370

   NPV                  (27,665)

The net present value of the proposed project is closest to -$27,670.

Explanation:

In this case, we need to obtain the present value of annual cost savings by multiplying the annual cost savings by the present value annuity factor of 3.6048. This factor can be derived from the present value of annuity table.

Moreso, there is need to determine the present value of salvage value by multiplying the salvage value by the discount factor for year 5. The discount factor can also be derived from the present value table. Thereafter, we will add the two present values and deduct the initial outlay.

Alternatively, present value of annuity factor can be obtained using the formula 1 - (1+r)-n/r  ie 1-(1+0.12)-5/0.12 = 3.6048 while the discount factor for year 5 is calculated as (1+r)-n = (1+0.12)-5 = 0.5674.

Otras preguntas