40 Clairmont Corporation is considering the purchase of a ma

40. Clairmont Corporation is considering the purchase of a machine that would cost $130,000 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 $33,000. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes in this problem.) Click here to view Exhibit 11B-1 and Exhibit 113-2, to determine the appropriate discount factor(s) using tables. The net present value of the proposed project is closest to: (Round discount factorfs) to 3 decimal places, intermediate and final answers to the nearest dollar amount.) $(3,622) O $12,542 $35,000 O $(18.969)

Solution

$ (3,622)

Working:

a.	Present Value of annuity of 1	=	(1-(1+i)^-n)/i	Where,
				=	(1-(1+0.13)^-5)/0.13	i	13%
				=	3.517		n	5
b.	Present Value of 1		=	(1+i)^-n		Where,
				=	(1+0.13)^-5		i	13%
				=	0.543		n	5
c.	Present Value of annual Saving	$       33,000	x	3.517	=	$       1,16,061
	Present Value of Salvage	$       19,000	x	0.543	=	$           10,317
	Total Present Value of Cash inflows					$       1,26,378
	Less:Cost of Project					$       1,30,000
	Net Present Value					$           -3,622