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2. Company A is considering a new piece of equipment. It will cost $6,000 and will produce cash flows of $1,000 every year for the
2. Company A is considering a new piece of equipment. It will cost $6,000 and will produce cash flows of $1,000 every year for the next 12 years (the first cash flow will be exactly one year from today). a. What is the NPV if the appropriate discount rate is 10% ? b. What is the NPV if the appropriate discount rate is 12% ? c. What is the NPV if the appropriate discount rate is 15% ? d. Draw an NPV profile and put a comment on it. e. Assume that the company is able to invest in an upgrade of the equipment that would cost $1,000 in year 5 , but would increase the cash flows in years 6-12 to $2,000, what is the new NPV? There will be no cash inflows in year 5 and the applicable discount rate will be 15%
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