Question
FutureFuel Corp is considering the replacement of its current oil extraction machine with a more efficient one. The current machine can be sold for $100,000
FutureFuel Corp is considering the replacement of its current oil extraction machine with a more efficient one. The current machine can be sold for $100,000 now. The new machine will cost $300,000 and will require an additional $100,000 in working capital. It is expected to generate extra annual cash inflows of $90,000 in the first year and $180,000 in each of the following two years. The machine has a three-year lifespan with no residual value. The company's required rate of return is 13%. Calculate the NPV of this investment and advise if the new machine should be purchased.
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