Clairmont Corporation is considering the purchase of a machine that would cost $
ID: 2476577 • Letter: C
Question
Clairmont Corporation is considering the purchase of a machine that would cost $160,000 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 $36,000. The company requires a minimum pretax return of 8% on all investment projects. (Ignore income taxes in this problem.) Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. The net present value of the proposed project is closest to:
$(3,313)
$12,233
$20,000
$(18,660)
Explanation / Answer
NPV (3,313.00) Statement showing Cash flows Particulars Time PVf@8% Amount PV Cash Outflows - 1.00 (160,000.00) (160,000.00) PV of Cash outflows = PVCO (160,000.00) Cash inflows 1.00 0.9260 36,000.00 33,336.00 Cash inflows 2.00 0.8570 36,000.00 30,852.00 Cash inflows 3.00 0.7940 36,000.00 28,584.00 Cash inflows 4.00 0.7350 36,000.00 26,460.00 Cash inflows 5.00 0.6810 36,000.00 24,516.00 Cash inflows = Salvage Value 5.00 0.6810 19,000.00 12,939.00 PV of Cash Inflows =PVCI 156,687.00 NPV= PVCI - PVCO (3,313.00)