Your company is considering the purchase of a new piece of equipment. The equipment costs ($50,000,) and
Question:
Your company is considering the purchase of a new piece of equipment. The equipment costs \($50,000,\) and your analysis indicates that the PV of the future cash fl ows from the equipment is \($45,000.\) Thus the NPV of the equipment is −\($5,000.\) This estimated NPV is based on some initial numbers provided by the manufacturer plus some creative thinking on the part of your financial analyst.
The seller of the new piece of equipment is offering a course on how it works.
The course costs \($1,500.\) You estimate that
• The σ of the equipment’s cash flows is 30 percent.
• The risk-free rate is 6 percent.
• You will have another half year after the course to purchase the equipment at the price of \($50,000\).
Is it worth taking the course?
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