The management of Opray Corporation is considering the purchase of a machine that would cost $360,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $78,000 per year. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.)Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.The net present value of the proposed project is closest to:
A) $15,646
B) $89,588
C) $7,536
D) $186,000

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the annual savings of $78,000 over 7 years at the required rate of return of 11%. Using the present value of annuity factor for 11% over 7 years (from the tables), the NPV is closest to $7,536.

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