Net Present Value Method
Response to the following problem:
The Carroll Broom Company is thinking of purchasing a new automatic straw-binding machine. The company president, Joan Carroll, has determined that such a machine would save the company $10,000 per year in labor costs. The machine would cost $46,500 and would have a useful life of 10 years and a scrap value of $500. The machine would require servicing after five years at a cost of $1,000. Carroll uses a discount rate of 16%. Compute the net present value. From a quantitative standpoint, should the machine be purchased?