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Net Present Value

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)

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