Question
A company considers a capacity investment of 2 machines, where there is a probability of 40 % that each machine will have a positive NPV
A company considers a capacity investment of 2 machines, where there is a probability of 40 % that each machine will have a positive NPV of $1.000.000 and a 60 % probability that the machine will have a negative NPV of $1.000.000.
Based on NPV, Would you recommend the company to go ahead with the investment?
Assume that the company could do a staged investment, and decide after 1 year whether to go ahead with investment in a second machine based on the outcome of the first investment. Assume 10 % discount rate. Assume that the success of machine 2 is dependent on the success of machine 1.
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Horngrens Cost Accounting A Managerial Emphasis
Authors: Srikant M. Datar, Madhav V. Rajan
16th edition
134475585, 978-0134475998, 134475992, 978-0134475585
