Question
You are analyzing the acquisition of a new machine. The initial investment is estimated at $30 million. It is anticipated that the purchase of the
You are analyzing the acquisition of a new machine. The initial investment is estimated at $30 million. It is anticipated that the purchase of the machine will increase the company’s revenue by $15 million annually, while the associated operating expenses are expected to be $5 million per year. The machine’s market value is expected to depreciate by $7.5 million each year it is in service.
If the company plans to keep the machine for only three years, would you accept this investment based on its NPV? Assuming no taxes and the required rate of return is 20% per year.
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