Thornley Machines is considering a 3-year project with an initial cost of $618,000. The project will not directly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $60,000. The tax rate is 34%. The project will require $23,000 in extra inventory for spare parts and accessories. Should this project be implemented if Thornley's requires a 9% rate of return? Why or why not?
A) No; The NPV is -$2,646.00.
B) Yes; The NPV is $27,354.00.
C) Yes; The NPV is $32,593.78.
D) Yes; The NPV is $43,106.54.
E) Yes; The NPV is $196,884.40.

Question

Quizplus · Accepted Answer

The NPV is $27,354.00. The project should be implemented because the NPV is positive, indicating that the project is expected to generate a positive return.

Thornley Machines Is Considering a 3-Year Project with an Initial