The Management of Penfold Corporation Is Considering the Purchase of a Machine

question 118

Multiple Choice

The management of Penfold Corporation is considering the purchase of a machine that would cost $440,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $102,000 per year. The company requires a minimum pretax return of 16% on all investment projects. The net present value of the proposed project is closest to (Ignore income taxes.) :Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

• A) $(28,022)
• B) $96,949
• C) $(79,196)
• D) $274,000

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Definitions:

Lower Output

Refers to a reduction in the quantity of goods or services produced by a company or sector.

Raise Prices

An action taken by sellers to increase the cost that buyers must pay for goods or services.

Joint Profits

The combined earnings or financial gains shared between two or more parties engaged in a business venture.

Competitive Markets

Markets characterized by numerous buyers and sellers, enabling competition that regulates prices and quality.