Janes, Inc. is considering the purchase of a machine that would cost $620,000 and would last...

Janes, Inc. is considering the purchase of a machine that would cost $620,000 and would last for 10 years, at the end of which, the machine would have a salvage value of $62,000. The machine would reduce labor and other costs by $122,000 per year. Additional working capital of $8,000 would be needed immediately, all of which would be recovered at the end of 10 years. The company requires a minimum pretax return of 16% on all investment projects. (Ignore income taxes.)

Determine the net present value of the project.

Solutions

Expert Solution

	Year	Value Flows	Present Factor @ 16%	Present Value
		(i)	(ii)	(i) X (ii)
Initial Cost	0	$ -6,20,000	1	$ -6,20,000
Working Capital	0	$ -8,000	1	$ -8,000
Cash Inflows	1-10	$ 1,22,000	4.833	$ 5,89,626
Salvage Value	10	$ 62,000	0.227	$ 14,074
Working capital	10	$ 8,000	0.227	$ 1,816
Net Present Value				$ -22,484

Net Present Value of the projcet is -$22,484

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Parrish, Inc. is considering the purchase of a machine that would cost $240,000 and would last...

Parrish, Inc. is considering the purchase of a machine that would cost $240,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $48,000. The machine would reduce labor and other costs by $62,000 per year. Additional working capital of $7,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company’s discount rate is 17% Compute the net present value of the proposed...

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...

Clairmont Corporation is considering the purchase of a machine that would cost $140,000 and would last...

Clairmont Corporation is considering the purchase of a machine that would cost $140,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $30,000. The company requires a minimum pretax return of 7% on all investment projects. (Ignore income taxes in this problem.)

management is considering the purchase of a machine that would cost $360,000, would last for 7...

management is considering the purchase of a machine that would cost $360,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $78,000 per year. The company requires a minimum pretax return of 11% on all investment projects. The net present value of the proposed project is what?

Almendarez Corporation is considering the purchase of a machine that would cost $170,000 and would last...

Almendarez Corporation is considering the purchase of a machine that would cost $170,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $19,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $41,000. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount...

Quinn Industries is considering the purchase of a machine that would cost $400,000 and would last...

Quinn Industries is considering the purchase of a machine that would cost $400,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $95,000. The machine would reduce labor and other costs by $82,000 per year. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.) Required: Provide your Excel input and the final net present value amount you calculated. Input the required variables...

Quinn Industries is considering the purchase of a machine that would cost $380,000 and would last...

Quinn Industries is considering the purchase of a machine that would cost $380,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $95,500. The machine would reduce labor and other costs by $76,000 per year. The company requires a minimum pretax return of 14% on all investment projects. (Ignore income taxes.) Required: Provide your Excel input and the final net present value amount you calculated. Required: Input the required...

Quinn Industries is considering the purchase of a machine that would cost $380,000 and would last...

Quinn Industries is considering the purchase of a machine that would cost $380,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $93,000. The machine would reduce labor and other costs by $73,000 per year. The company requires a minimum pretax return of 16% on all investment projects. (Ignore income taxes.) Required: Provide your Excel input and the final net present value amount you calculated. (If a variable is...

For example, Adelphi, Inc., is considering the purchase of a machine that would cost $370,000 now,...

For example, Adelphi, Inc., is considering the purchase of a machine that would cost $370,000 now, and would last for 8 years. At the end of 8 years, the machine would have a salvage (disposal) value of $50,000. The machine would reduce labor and other costs by $60,000 per year. All cost savings are assumed to occur at the end of each year. Additional working capital of $5,000 would be needed immediately. All of this working capital would be recovered...

Curtis industries is considering the purchase of a new machine. It will cost $80,000, last for...

Curtis industries is considering the purchase of a new machine. It will cost $80,000, last for 8 years, and have a residual value of $10,000. If purchased, the machine is expected to increase cash inflows by $80,000 per 8 years, with $64,000 per year for 8 years in additional cash outlays required to operate the machine. The company uses the straight-line method of depreciation, and desires a 12% minimum rate of return. The present value factors of $1 due eight...

Subjects