Question
A company is evaluating the feasibility of investing in machinery to manufacture an automotive component. It would need to make an investment of $550,000 today,
A company is evaluating the feasibility of investing in machinery to manufacture an automotive component. It would need to make an investment of $550,000 today, after which, it would have to spend $7,000 every year starting one year from now, for eight years. At the end of the period, the machine would have a salvage value of $10,000. The company confirmed that it can produce and sell 7,900 components every year for eight years and the net return would be $13.80 per component. The company's required rate of return is 6.00%.
a.What is the Net Present Value (NPV) of this investment option?
b.Is the investment option feasible?
Yes
No
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