The management of Urbine Corporation is considering the purchase of a machine that would cost...
Question:
The management of Urbine Corporation is considering the purchase of a machine that would cost $310,000 would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $60,000 per year. The company requires a minimum pretax return of 12% on all investment projects. (Ignore income taxes in this problem.)
The net present value of the proposed project is closest to:
A) $63,340
B) $8,340
C) $35,455
D) $91,225
Net Present Value
Net present value analysis applies the time value of money to future cash inflows and cash outflows so management can evaluate a project's benefits and costs at one point in time. The initial investment cost is subtracted from the present value of future cash flows in order to calculate the net present value of a project.
Answer and Explanation: 1
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View this answerThe answer is A) $63,340
Net present value = ($63,316)
Solution calculations:
Step 1: Calculate the present value of the future cash flows (cost...
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How to Calculate Net Present Value: Definition, Formula & Analysis
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Learn about what net present value is, how it is calculated both for a lump sum and for a stream of income over multiple years. View some examples on NPV.
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