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Baby Yoda Inc. (BYI) is a large plastic manufacturing company that manufactures tea cups. Grogu the owner estimates that if BYI invests $150,000 in a
Baby Yoda Inc. (BYI) is a large plastic manufacturing company that manufactures tea cups.
Grogu the owner estimates that if BYI invests $150,000 in a new machine it will save $39,000 in annual operating costs for the first 5 years and $35,000 in year 6. The machine has an estimated life of 6 years and no terminal disposal value.
The required rate of return is 11%. Ignore taxes. Assume all cash flows occur at year-end except for initial investment amounts.
REQUIRED:
- Calculate the Net Present Value (NPV) of the new machine. (Use Excel). (2 marks)
- Other than NPV, what other factors (financial and non-financial) should BYI consider when purchasing the machine? List and fully explain two. (2 marks). Hint: NPV is positive is not one of them.
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