Company A is thinking of purchasing a machine that costs $250,000. This will reduce material costs $90,000 a year for the next 5 years.This will require maintenance of $10,000/yr and can be sold for $50,000 at the end of 5 yr.This project requires working capital of $20,000. ABC has a required rate of return of 9%.Should they go ahead? Why or why not?

The answer is Company A should purchase the machine. Using Net Present Value (NPV), we can determine whether you can purchase the machine or not. Based on the computation, the machine creates a value or profit for $41,172 and the company should buy it.

What does this possibly mean, or what does this tell us?