Griffith Corporation is considering an investment in a labor-saving machine. Information on this machine follows: Cost $30,000 Salvage value in five years $0 Estimated life 5 years Annual depreciation $6,000 Annual reduction in existing costs $8,000 Refer to Griffith Corporation. Assume for this question only that Griffith Corporation uses a discount rate of 16 percent to evaluate projects of
this type. What is the project's net present value? Present value tables or a financial calculator are required.
a. $(6,283)
b. $(3,806)
c. $(23,451)
d. $(22,000)
B
Use PV of Annuity Table 16%, 5 years. Corresponding constant is 3.2743
Annual reduction in costs $8,000 * 3.2743 $ 26,194
Investment (30,000)
Net Present Value ( 3,806)
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