Clairmont Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $37,000. The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to:
A)($6,409)
B)($11,295)
C)$1,385
D)($16,615)

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the annual savings and salvage value at the required rate of return and subtracting the initial investment. The NPV is closest to ($6,409).

Clairmont Corporation Is Considering the Purchase of a Machine That