• 3) A firm considers to buy a new machine whose expected lifetime is 6 years. The cost of the machine is $ 3 000 000 which is paid in 2022. The expected cash flows of this investment are as follows:

2023: $ 700 000

2024: $ 800 000

2025: $ 1 200 000

2026: $ 1 300 000

2027: $ 900 000

2028: $ 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) ?
• d) Find the PI value (profitability index) using the cost of investment and the expected cashflows of this problem and mention if the investment is accepted or rejected.