Your company is deciding whether to invest in a new machine. The new machine wil

Question

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $318,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,710,000. The cost of the machine will decline by $105,000 per year until it reaches $1,185,000, where it will remain.

  

If your required return is 13 percent, calculate the NPV today. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

   

If your required return is 13 percent, calculate the NPV for the following years. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Negative amounts should be indicated by a minus sign.)

  

   

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $318,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,710,000. The cost of the machine will decline by $105,000 per year until it reaches $1,185,000, where it will remain.

Explanation / Answer

NPV = 15,545.43

If your required return is 13 percent, calculate the NPV for the following years.

Yes as it has Positive NPV

Two years from now - as it has highest NPV

If your required return is 13 percent, calculate the NPV today. Year Particulars Cashflow Discounted factor @13% Discounted Cashflow 0 Initial Cashflow (1,710,000) 1.000 $ (1,710,000.00) 1 Cashflow         318,000 0.885 $       281,415.93 2 Cashflow         318,000 0.783 $       249,040.65 3 Cashflow         318,000 0.693 $       220,389.95 4 Cashflow         318,000 0.613 $       195,035.36 5 Cashflow         318,000 0.543 $       172,597.66 6 Cashflow         318,000 0.480 $       152,741.29 7 Cashflow         318,000 0.425 $       135,169.28 8 Cashflow         318,000 0.376 $       119,618.84 9 Cashflow         318,000 0.333 $       105,857.38 10 Cashflow         318,000 0.295 $         93,679.09 NPV $         15,545.43

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