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In: Accounting

Joanette, Inc., is considering the purchase of a machine that would cost $600,000 and would last...

Joanette, Inc., is considering the purchase of a machine that would cost $600,000 and would last for 6 years, at the end of which, the machine would have a salvage value of $50,000. The machine would reduce labor and other costs by $110,000 per year. Additional working capital of $4,000 would be needed immediately, all of which would be recovered at the end of 6 years. The company requires a minimum pretax return of 10% 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 the tables provided.

Required:

Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.)

Solutions

Expert Solution

Statement showing calculation of net present value of the proposed project
Particulars Year cashflows Dis, Fcat.@10% PV Amount
Cash out flow 0           6,00,000 1             6,00,000
Working capital 0                4,000 1                  4,000
            6,04,000
Cash in flow 1--6           1,10,000 4.3553             4,79,079
Salvage value 6th              50,000 0.5645                28,224
Working capital Recover 6th                4,000 0.5645                  2,258
PV of cash inflows             5,09,560
Net Present Value of the project               -94,440

ekkarill92 answered 2 years ago
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