Quinn Industries is considering the purchase of a machine that would cost $440,0
ID: 2657282 • Letter: Q
Question
Quinn Industries is considering the purchase of a machine that would cost $440,000 and would last for 8 years. At the end of 8 years, the machine would have a salvage value of $93,500. The machine would reduce labor and other costs by $70,000 per year. The company requires a minimum pretax return of 17% on all investment projects Ignore income taxes.) (Ignore income taxes.) Required: Provide your Excel input and the final net present value amount you calculated. (If a variable is not used in the calculation, input a zero (0). Omit the "S" and %" signs in your response.) Round your answer to the nearest dollar and use a minus sign for negative numbers. Excel input: Rate Nper PMT PV FV Net Present Value (NPV)Explanation / Answer
Cost of Machine = $440,000
Annual Cost Saving = $70,000
Salvage Value = $93,500
Useful Life = 8 years
Required Return = 17%
Answer a.
For the calculation of present value of cash inflows:
Rate = 17%
NPER = 8
PMT = 70000
FV = 93500
PV = 321,129
Present Value of Cash Inflows = $321,129
Net Present Value = Present Value of Cash Inflows - Cost of Machine
Net Present Value = $321,129 - $440,000
Net Present Value = -$118,871
Answer b.
For the calculation of internal rate of return:
NPER = 8
PMT = 70000
FV = 93500
PV = -440000
Rate = 8.7%
Internal Rate of Return = 8.7%