A company is considering a cost-saving project. This involves purchasing a machine costing $\$ 7,000$, which will result in annual savings (in real terms) on wage costs of $\$ 1,000$ and on material costs of $\$ 400$.

The following forecasts are made of the rates of inflation each year for the next five years:

Calculate the NPV of the project, assuming that the machine has a life of five years and no scrap value.

Transcribed Image Text:

Wage costs Material costs General prices 10% 5% 6%