Joanette, Incorporated, is considering the purchase of a machine that would cost $420,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $42,000. The machine would reduce labor and other costs by $102,000 per year. Additional working capital of $4,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company requires a minimum pretax return of 17% on all investment projects. (Ignore income tax). Determine the net present value of the project. (Negative amount should be
Joanette, Incorporated, is considering the purchase of a machine that would cost $420,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $42,000. The machine would reduce labor and other costs by $102,000 per year. Additional working capital of $4,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company requires a minimum pretax return of 17% on all investment projects. (Ignore income tax). Determine the net present value of the project. (Negative amount should be
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Joanette, Incorporated, is considering the
purchase of a machine that would cost
$420,000 and would last for 5 years, at the
end of which, the machine would have a
salvage value of $42,000. The machine
would reduce labor and other costs by
$102,000 per year. Additional working
capital of $4,000 would be needed
immediately, all of which would be
recovered at the end of 5 years. The
company requires a minimum pretax return
of 17% on all investment projects. (Ignore
income tax).
Determine the net present value of the
project. (Negative amount should be
indicated by a minus sign. Round your
intermediate calculations and final answer
to the nearest whole dollar amount.)
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