Almendarez Corporation is considering the purchase of a machine that would cost $150,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $18,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $39,000. The company requires a minimum pretax return of 13% on all investment projects. (Ignore income taxes.)The net present value of the proposed project is closest to: a. $(45,000)b. $(3,063)c. $11,983d. $(18,410)

This can be calculated as the present value of a cost-saving project, with rate of return equal to 13%. In the table, its the cash flow (in thousands of dollars)

Item/Year 0 1 2 3 4 5

Cost-savings 39 39 39 39 39

Salvage value 18

Purchase -150

TOTAL -150 39 39 39 39 57

With these cash flows, we can calculate the present value discounting at the rate of return of 13%:

[tex]PV=\sum_{k=0}^5CF_i(1+i)^{-k}\\\\PV=-150,000/1.13^0+39,000/1.13^{-1}+39,000/1.13^{-2}+39,000/1.13^{-3}+39,000/1.13^{-4}+57,000/1.13^{-5}\\\\PV= -150,000+34,513+30,543+27,029+ 23,919 +30,937 \\\\PV=-3,058[/tex]

The present value is closest to Option b. $(3,063)