Question

Ignore income taxes in this problem.) The management of Mashiah Corporation is considering the purchase of a machine that would cost $520,000, would last for 9 years, and would have no salvage value. The machine would reduce labor and other costs by $108,000 per year. The company requires a minimum pretax return of 10% on all investment projects. Click here to view Exhibit 8B-1 and Exhibit 8B-2 to determine the appropriate discount factor(s) using tables. The net present value of the proposed project is closest to: $229,422 $101,972 $552,000 $138,839

Answer 1

solution:

given  

The management of Mashiah Corporation is considering the purchase of a machine that would cost $520,000, would last for 9 years, and would have no salvage value.

The machine would reduce labor and other costs by $108,000 per year.

The company requires a minimum pretax return of 10% on all investment projects.

threfore,
Present value of inflows=$108000*Present value of annuity factor(10%,9)

=$102000*5.7590(Approx)

=$621972(Approx).

we know

NPV=Present value of inflows-Present value of outflows

=$621972-$520000

=$101972
option b