Woods Manufacturing is considering the purchase of a new sewing machine that costs $18,000.The machine, because of its efficiency, will save about $4,000 in cost each year.The machine is expected to have a salvage value of $3,000 and a life of 6 years.Woods' required rate of return is 12%.Using the interest tables, what is the machine's net present value?
A)($34)
B)$1,520
C)$15,000
D)$24,000

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the annual savings and the salvage value to their present values and subtracting the initial cost. The NPV is slightly negative, indicating the investment does not meet the required rate of return.

Woods Manufacturing Is Considering the Purchase of a New Sewing