QUESTION 1

Bill wants to purchase a machine to help improve the quality of the product his company manufactures. The information needed to answer this question is provided below: INFORMATION NEW MACHINE: Purchase Price $200,000.00 Estimated Life 4 YEARS Use Straight Line Depreciation Method Estimated Salvage Value $20,000.00 Estimated Net Operating Cash Flow Increase/Decrease (Prior to Depreciation and Taxes) End of Year 1 $60,000.00 End of Year 2 $80,000.00 End of Year 3 $80,000.00 End of Year 4 $90,000.00 ASSUMPTIONS: Working Capital Addition $40,000 Tax Rate 40% WACC Rate 10% Based on this information, if Bill decides to purchase the new machine, the NPV will be:

A. 4,629

B. 3,657

C. 3,381

QUESTION 2 Based on the correct calculation, Bill

A. should not buy this machine since the NPV is negative and the company would not be getting a sufficient return.

B. should buy this machine since the NPV is positive and the company would getting a sufficient return above the required amount.