The management of Mashiah Corporation is considering the purchase of a machine that would cost $290,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $102,000 per year. The company requires a minimum pretax return of 13% on all investment projects. The net present value of the proposed project is closest to:
A)$154,663
B)$322,000
C)$117,796
D)$245,246

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the annual savings of $102,000 over 6 years at the required rate of return of 13% and subtracting the initial investment of $290,000. The NPV is closest to $117,796.

The Management of Mashiah Corporation Is Considering the Purchase of a Machine