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Short Exercise 24-4 Net Present Value Method

Sandcastles, Inc.'s management has recently been looking at a proposal to purchase a new brick molding machine. With the new machine, the company would not have to buy bricks. The estimated useful life of the machine is 15 years, and the purchase price, including all setup charges, is $400,000. The residual value is estimated to be $40,000. The net addition to the company's cash inflow as a result of the savings from making the bricks is estimated to be $70,000 a year. Sandcastle's management has decided on a minimum rate of return of 14 percent.

Using the net present value method to evaluate this capital investment, determine whether the company should purchase the machine. -Select-PurchaseDo not purchaseItem 1

Support your answer. (Hint:UseTable 1andTable 2.) NPV$