10 Jan The net present value of the
1.
Frick Road Paving Corporation is considering an investment in a curb-forming machine. The machine will cost $180,000, will last 10 years, and will have a $30,000 salvage value at the end of 10 years. The machine is expected to generate net cash inflows of $40,000 per year in each of the 10 years. Frick’s discount rate is 10%. The net present value of the proposed investment is closest to:
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
$250,000
$65,800
$245,800
$77,380
2.
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.
Click here to view Exhibit 11B-2 to determine the appropriate discount factor(s) using tables.
The present value of the annual cost savings of $102,000 is closest to:
$849,012
$612,000
$195,872
$407,796
3.
Clairmont Corporation is considering the purchase of a machine that would cost $160,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $19,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $36,000. The company requires a minimum pretax return of 8% on all investment projects. (Ignore income taxes in this problem.)
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
The net present value of the proposed project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
$(3,313)
$12,233
$20,000
$(18,660)
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