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NPV for varying cost of capital: Dane Cosmetics is evaluating a new fragrance mixing maching. The machine requires an initial investment of $24000 and will
NPV for varying cost of capital: Dane Cosmetics is evaluating a new fragrance mixing maching. The machine requires an initial investment of $24000 and will generate after-tax cash inflows of $5,000 per year for 8 year. For each of the costs of capital listed, (1) calculate the net present value, (2) indicate whether to accept or reject the mahine, and (3) explain your decision.
a. The cost of capital is 10%
b. The cost of capital is 12%
c. The cost of capital is 14%
Cost of Capital | 10% | 12% | 14% |
Initial Investment | |||
After-tax Inflows | |||
Year 1 | |||
Year 2 | |||
Year 3 | |||
Year 4 | |||
Year 5 | |||
Year 6 | |||
Year 7 | |||
Year 8 | |||
NPV = | |||
Accept or Reject? |
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