Question
2. A company has a minimum required rate of return of 9%. The company is considering investing in a factory machine which costs $75,000 and
2. A company has a minimum required rate of return of 9%. The company is considering investing in a factory machine which costs $75,000 and has an expected life of three years. The machine has a zero salvage value and will be depreciated using the straight-line depreciation method. The company expects to generate an extra $5,000 of net income each of the next 3 years because of this new factory machine and extra annual cash flows of $30,000 each of the 3 years the asset will be used. a. Compute the present value of the cash receipts. b. What is the net present value of the investment in the factory machine? Is the net present value a negative or positive value? ______________ c. What is the internal rate of return? Between ______% and _____%. d. Do any of the answers above support this investment? Which ones? Please show work
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