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 $7,500 every year starting one year from now, for eleven years. At the end of the period, the machine would have a salvage value of $11,000. The company confirmed that it can produce and sell 7,950 components every year for eleven years and the net return would be $13.40 per component. The company's required rate of return is 8.00%.
a. What is the Net Present Value (NPV) of this investment option?
b. Is the investment option feasible?
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