Sibble Corporation is consideriThe net present value of the proposed project is closest tong the purchase of a machine that would cost $440,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $82,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $99,000. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes.) : (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.) a.) −$47,291 b.) −$91,817 c.) −$9,817 d.) −$136,343
Answer : -$47291
Working Notes for the Above answer
We have been provided with the information as follow
| Cost | 440,000 |
| Salvage Value | 82000 |
| Life 5 year | 5 year |
| Cost Savings | 99000 |
| minimum pretax return of 13% | 13% |
Now we will calculate NPV of the project
| Year | Cash Flow | Salvage Vaue |
Net Cash Flow | Pv Factor@13% | Prasent Value |
| 0 | -440,000 | -440,000 | 1 | -440000 | |
| 1 | 99000 | 99,000 | 0.885 | 87615 | |
| 2 | 99000 | 99,000 | 0.7831 | 77526.9 | |
| 3 | 99000 | 99,000 | 0.6931 | 68616.9 | |
| 4 | 99000 | 99,000 | 0.6133 | 60716.7 | |
| 5 | 99000 | 82000 | 181,000 | 0.5428 | 98233.8 |
| -47291 |
