Question
ABC Corporation is considering the purchase of a new machine for $250,000. The machine has an expected useful life of 5 years and a salvage
ABC Corporation is considering the purchase of a new machine for $250,000. The machine has an expected useful life of 5 years and a salvage value of $10,000 at the end of its useful life. The expected net annual cash inflows from the machine are $70,000 for each of the first two years, $50,000 for each of the next two years, and $30,000 in the final year. ABC Corporation's cost of capital is 10%. Determine the net present value (NPV) and profitability index (PI) of the investment. Should ABC Corporation make the investment?
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Principles of Finance
Authors: Scott Besley, Eugene F. Brigham
6th edition
9781305178045, 1285429648, 1305178041, 978-1285429649
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