Mitchell Company is considering an investment in a new machine. Managers at the company are uncertain about
Question:
Mitchell Company is considering an investment in a new machine. Managers at the company are uncertain about the economic life of the machine because of the speed of innovation in the technology. The machine requires an investment of $1.56 million. After-tax cash flows are estimated to be $650,000 each year the machine is operating (and not obsolete). The company uses a 14 percent discount rate in evaluating capital investments.
Required
What is the minimum economic life of the machine (in whole years) that would be required for it to have a positive net present value? Ignore tax effects.
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Four years is the minimum economic life Because the cash flows are uniform we can ...View the full answer
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