Clairmont Corporation is considering the purchase of a machine that would cost $
ID: 2492920 • Letter: C
Question
Clairmont Corporation is considering the purchase of a machine that would cost $220,000 and would last for 6 years. At the end of 6 years, the machine would have a salvage value of $21,500. By reducing labor and other operating costs, the machine would provide annual cost savings of $46,000. The company requires a minimum pretax return of 10% on all investment projects. (Ignore income taxes in this problem.) Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. The net present value of the proposed project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
Explanation / Answer
Answer: Calculation of the NPV:
Discount rate 10% Year Cash Flows ($) 0 -220000 1 46000 2 46000 3 46000 4 46000 5 46000 6 67500 NPV -7521.818