Thurton Industrial is considering the installation of a $1,800,000 production conveyor system that would generate the following

Question:

Thurton Industrial is considering the installation of a $1,800,000 production conveyor system that would generate the following labor cost savings over its 10-year life:

Years Annual Labor Cost Savings

1–2 .........$280,000

3–5 ......... 340,000

6–8 ......... 288,800

9–10 ......... 260,000

The system will have no salvage at the end of its 10-year life, and the company uses a discount rate of 12 percent. What is the pre-tax net present value of this potential investment?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...