Answer:
Lamping, Inc.
The net present value of the project is:
= ($22,544)
Explanation:
a) Data and Calculations:
Cost of machine = $520,000
Useful life of machine = 7 years
Salvage value = $52,000
Cost savings = $112,000 per year
Initial working capital $6,000
Recovered working capital = $6,000
Minimum required pretax return = 14%
PV of initial costs = $526,000 ($520,000 + $6,000)
PV of costing savings (annuity) = $480,256 ($112,000 * 4.288)
PV of salvage and recovered working capital = $23,200 ($58,000 * 0.400)
Total savings/benefits = $503,456 ($480,256 + $23,200)
NPV = ($22,544)
