Janes, Inc., is considering the purchase of a machine that would cost $400,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $67,000. The machine would reduce labor and other costs by $109,000 per year. Additional working capital of $4,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company requires a minimum pretax return of 12% on all investment projects.
Required:
Determine the net present value of the project. Show your work!

Question

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The Answer of Janes, Inc., is considering the purchase of a machine that would cost $400,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $67,000. The machine would reduce labor and other costs by $109,000 per year. Additional working capital of $4,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company requires a minimum pretax return of 12% on all investment projects.
Required:
Determine the net present value of the project. Show your work!