Question
1)A firm considers buying a new machine whose expected lifetime is 6 years. The cost of the machine is $ 3 000 000 which is
1)A firm considers buying a new machine whose expected lifetime is 6 years. The cost of the machine is $ 3 000 000 which is paid in 2020. The expected cash flows of this investment are as follows:
2021: $ 700 000
2022: $ 800 000
2023: $ 1 200 000
2024: $ 1 300 000
2025: $ 900 000
2026: $ 600 000
a)Find the net present value of this investment using a discount rate of 18%
b)Should the firm accept or reject this investment (write accept or reject as your answer)?
c)What is the expected contribution of that investment to the value of the firm (give a numerical answer)?
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Handbook Of The Economics Of Finance
Authors: George M. Constantinides, Milton Harris, Rene M. Stulz
1st Edition
044459406X, 978-0444594068
