The management of Kinion Corporation is considering the purchase of a machine that would cost $170,000, would last for 7 years, and would have no salvage value. The machine would reduce labor and other costs by $50,000 per year for each of the 7 years. The required rate of return is 16%.
Show your work!
Required:
1. Determine the net present value of the project.
2. Determine the payback period.
3. Should the company purchase the machine?