Net Present Value

Each of the following scenarios is independent. Assume that all cash flows are after$-$tax cash flows.

a$.$ Southward Manufacturing is considering the purchase of a new welding system. The cash benefits will be $400,000$ per year. The system costs $2,250,000$ and will last $10$ years.

B$)$Kaylin Day is interested in investing in a women's specialty shop. The cost of the investment is $$180,000.$ She estimates that the return from owning her own shop will be $$35,000$ per year. She estimates that the shop will have a useful life of six years.

C$)$Goates Company calculated the NPV of a project and found it to be $$21,300.$ The project's Inte was estimated to be eight years. The required rate of return used for the NPV calculation was $10$ percent. The project was expected to produce annual after tax cash fous of $45000$ dollars.

Required:

$1)$ Compute the NPV for Southward Manufacturng, assuming a discount rate of $12$ percent.should the company buy the new welding system?

$2.$Conceptual Connection: Assuming a required rate of return of $8$ percent, calculate the NPV for Kaylin Day's investment. Should she invest? What if the estimated return was $$45,000$

per year? Would this affect the decision? What does tus tell you about your analysis?

$3.$ What was the required investment for Goates Company$$s project?