Asked by Aerial Johnson on Jul 04, 2024
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(Ignore income taxes in this problem.) Dowlen, Inc., is considering the purchase of a machine that would cost $150,000 and would last for 6 years.At the end of 6 years, the machine would have a salvage value of $23,000.The machine would reduce labor and other costs by $36,000 per year.Additional working capital of $6,000 would be needed immediately.All of this working capital would be recovered at the end of the life of the machine.The company requires a minimum pretax return of 12% on all investment projects.The net present value of the proposed project is closest to:
A) $9,657
B) $(2,004)
C) $6,699
D) $13,223
Salvage Value
This is the estimated resale value of an asset at the end of its useful life.
Net Present Value
Net Present Value is a financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time, used to assess the profitability of an investment.
Pretax Return
The income an investment generates before taxes are taken into account.
- Ascertain the suitability of the net present value method in different contexts.
- Determine the net present value of an investment initiative by accounting for all significant cash flows.
- Analyze the role of working capital in determining the profitability and the investment needed for a project.
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Learning Objectives
- Ascertain the suitability of the net present value method in different contexts.
- Determine the net present value of an investment initiative by accounting for all significant cash flows.
- Analyze the role of working capital in determining the profitability and the investment needed for a project.
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