(c) Lens Plc is considering investing in a new machine that improves the efficiency of producing...
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(c) Lens Plc is considering investing in a new machine that improves the efficiency of producing eye glasses. The machine costs €200,000 and will become obsolete after 4 years-time. The projected cash inflows from the machine are expected to be €50,000 in year 1, €60,000 in year 2, €70,000 in year 3, and €200,000 in year 4. The required rate of return on the investment is 10%. The financial manager of Lens Plc has asked that you use three investment evaluation techniques and write a report explaining in detail whether Lens Plc should invest in this machine today. Would your recommendation change if the required rate of return increased to 15%? Explain why or why not. (17 marks) (c) Lens Plc is considering investing in a new machine that improves the efficiency of producing eye glasses. The machine costs €200,000 and will become obsolete after 4 years-time. The projected cash inflows from the machine are expected to be €50,000 in year 1, €60,000 in year 2, €70,000 in year 3, and €200,000 in year 4. The required rate of return on the investment is 10%. The financial manager of Lens Plc has asked that you use three investment evaluation techniques and write a report explaining in detail whether Lens Plc should invest in this machine today. Would your recommendation change if the required rate of return increased to 15%? Explain why or why not. (17 marks)
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SOLUTION To evaluate whether Lens Plc should invest in the new machine we will use three investment evaluation techniques net present value NPV intern... View the full answer
Related Book For
Fundamental Accounting Principles
ISBN: 978-0078110870
20th Edition
Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta
Posted Date:
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