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Joanette, Inc., is considering the purchase of a machine that would cost $510,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $61,000. The machine would reduce labor and other costs by $121,000 per year. Additional working capital of $7000 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 taxes.)
Use Exhibit 13B-1 and Exhibit 13B-2 above to determine the appropriate discount factor(s).
Required:
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.)
Net present value ​

Respuesta :

The difference between the current value of cash inflows and withdrawals over a period of time is known as net present value (NPV).

Define net present value.

A set of cash flows is said to have a net present value or net present worth if they occur at diverse times. The present value of a cash flow depends on how long it will be before it occurs. Another element is the discount rate. The temporal value of money is considered by NPV.

NPV = Cash flow ÷ (1 + i)^t – initial investment.

NPV = Today's value of the expected cash flows − Today's value of invested cash.

ROI = (Total benefits – total costs) ÷ total costs.

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