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Net Present Value

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Harper Company is contemplating the purchase of a machine capable of performing certain operations that are now performed manually.

The machine will cost $5,000, and it will last for five years.

At the end of the five-year period, the machine will have a zero scrap value. Use of the machine will reduce labor costs by $1,800 per year.

Harper Company requires a minimum pretax return of 20% on all investment projects?

Should the machine be purchased? (Use the Net Present Value calculation in your analysis)

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Solution Preview

We need to calculate the PV of the cash flows and then find the NPV to decide if the machine should be purchased.

Since we have a pre tax rate for ...

Solution Summary

The solution explains how the calculate the cash flows of a project and then use the NPC for accept/reject decision