Marsh Products Is Evaluating an Investment in New Production Machinery

Multiple Choice

Marsh Products is evaluating an investment in new production machinery. The initial investment is $250,000 and will yield cash flows of $60,000 per year for a 5 year period. At the end of 5 years, the machinery will be sold and has expected residual value of $40,000. Marsh uses a discount rate of 7%. What is the net present value of the investment?
$\begin{array}{|r|r|r|r|r|r|r|} \hline \text {Present Value of an Anuuity of}\\ \$1\\\hline& 5 \% & 6 \% & 7 \% & 8 \% & 9 \% & 10 \% \\\hline 1 & 0.952 & 0.943 & 0.935 & 0.92 & 0.917 & 0.909 \\\hline 2 & 1.859 & 1.833 & 1.808 & 1.78 & 1.759 & 1.736 \\\hline 3 & 2.723 & 2.673 & 2.624 & 2.577 & 2.531 & 2.487 \\\hline 4 & 3.546 & 3.465 & 3.387 & 3.31 & 3.240 & 3.170 \\\hline 5 & 4.329 & 4.212 & 4.100 & 3.99 & 3.89 & 3.791 \\\hline\end{array}$

$\begin{array}{|l|l|l|l|l|l|l|}\hline\text { Present Value of } \$ 1\\\hline&5\%&6\%&7\%&8\%&9\%&10\%\\\hline 1 & 0.952 & 0.943 & 0.935 & 0.926 & 0.917 & 0.909 \\\hline2 & 0.907 & 0.890 & 0.873 & 0.857 & 0.842 & 0.826 \\\hline 3 & 0.864 & 0.840 & 0.816 & 0.794 & 0.772 & 0.751 \\\hline4& 0.823 & 0.792 & 0.763 & 0.735 & 0.708 & 0.683 \\\hline5& 0.784 & 0.747 & 0.713 & 0.681 & 0.650 & 0.621 \\\hline\end{array}$

A) $13,460
B) $90,000
C) $2,990
D) $24,520