Question
Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and no salvage value. The machine will
Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and no salvage value. The machine will lower operating costs by $18,000 per year. The company also expects this investment to provide qualitative benefits that it is struggling to incorporate into its financial analysis. Assuming the companys required rate of return is 17% and the net present value of the investment before considering the qualitative benefits is $(29,404), the minimum dollar value per year that must be provided by the machines qualitative benefits to justify the $100,000 investment is closest to:
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$7,787.
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$8,247.
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$7,497.
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$8,067.
Assume that you are thinking about starting your own small business. After analyzing all the relevant cash flows, you estimate the projects net present value, over a five-year time horizon, to be $34,081. However, after further consideration, you decide that youll need to invest $40,000 in working capital that will be released at the end of the project. Assuming a discount rate of 17%, the investment in working capital will cause the projects net present value to change by how much?
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It will decrease by $24,460.
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It will decrease by $21,760.
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It will decrease by $18,460.
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It will decrease by $15,780.
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