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 $8,500 every year starting one year from now, for nine years. At the end of the period, the machine would have a salvage value of $13,000. The company confirmed that it can produce and sell 8,200 components every year for nine years and the net return would be $14.80 per component. The company's required rate of return is 7.00%.
a. What is the Net Present Value (NPV) of this investment option?
b. Is the investment option feasible?
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