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

ID: 2807198 • Letter: Y

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 if you wait to purchase the machine until the indicated year. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Explanation / Answer

NPV=-1710000+318000*PVIFA(13%,10)
=-1710000+(318000*5.426)
=-15545.43
2)Here we find the npv at end of ebery year abd discounted it to present value
Year 1=(-1710000+(105000*1)+(318000*PVIFA(13%,9))/1.13
=23775.51
Year 2=(-1710000+(105000*2)+(318000*PVIFA(13%,8))/1.13^2
=20368.83
Year 3=(-1710000+(105000*3)+(318000*PVIFA(13%,7))/1.13^3
=7892.92
Year 4=(-1710000+(105000*4)+(318000*PVIFA(13%,6))/1.13^4
=-11517.61
Year 5=(-1710000+(105000*5)+(318000*PVIFA(13%,5))/1.13^5
=-36104.64
Year 6=(-1710000+(105000*5)+(318000*PVIFA(13%,4))/1.13^4
=-114852.86

Yes we should
We should purchase it one year from now since at that time we have higher NPV

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

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