LO 3 Chad's Chocolates is considering the purchase of a new candy press. The machine under consideration costs $17,550 and would generate $2,650 in annual savings of direct labor costs over its 20-year life. At the end of 20 years, the press could be sold for $500. Chad's required rate of return is 16%. What is the machine's net present value?

A) $1,813

B) $ (1,813)

C) $ (1,839)

D) $ (1,339)

Question

Sage Hatfield

Business

4 January, 05:26

LO 3 Chad's Chocolates is considering the purchase of a new candy press. The machine under consideration costs $17,550 and would generate $2,650 in annual savings of direct labor costs over its 20-year life. At the end of 20 years, the press could be sold for $500. Chad's required rate of return is 16%. What is the machine's net present value?

A) $1,813

B) $ (1,813)

C) $ (1,839)

D) $ (1,339)

+5

Answers (1)

Know the Answer?

Harmon · Answer 1

B) $ (1,813)

Explanation:

Initial investment = 17,550

Annual cashflows = 2,650

Terminal Cashflow = 500

You can solve for NPV using financial calculator with the following inputs;

CF0 = - 17,550

C01 = 2,650

F01 (Frequency) = 19

C02 = 2,650 + 500 = 3,150

I=16%

Net present value; NPV = - 1,812.879 or - 1,813 rounded off to the nearest whole number.