(Ignore Income Taxes in This Problem

question 57

Multiple Choice

(Ignore income taxes in this problem.) Dokes, Inc. is considering the purchase of a machine that would cost $440,000 and would last for 9 years. At the end of 9 years, the machine would have a salvage value of $62,000. The machine would reduce labor and other costs by $81,000 per year. Additional working capital of $8,000 would be needed immediately. All of this working capital would be recovered at the end of the life of the machine. The company requires a minimum pretax return of 13% on all investment projects. The net present value of the proposed project is closest to:

• A) -$24,308
• B) -$8,998
• C) -$27,030
• D) -$3,662

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Definitions:

Cost Of Goods Sold

The total expense directly related to the production or acquisition of the goods sold by a company.

Acid-Test Ratio

A liquidity ratio that measures a company's ability to pay off its current liabilities with quickly convertible assets.

Financial Statements

Records that provide an overview of a company's financial condition, including balance sheet, income statement, and cash flow statement.

Accounts Receivable Turnover

A ratio that measures how many times a business collects its average accounts receivable balance in a period.