Determining the net present value Joan Mead, manager of the Grand Music Hall, is considering the opportunity

Question:

Determining the net present value Joan Mead, manager of the Grand Music Hall, is considering the opportunity to expand the company’s concession revenues. Specifically, she is considering whether to install a popcorn machine. Based on market research, she believes that the machine could produce incremental cash inflows of $1,600 per year. The purchase price of the machine is $5,000. It is expected to have a useful life of three years and a $1,000 salvage value. Ms. Mead has established a desired rate of return of 16 percent.

Required

a. Calculate the net present value of the investment opportunity.

b. Should the company buy the popcorn machine?

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