Question Number 3 :

The management of a Company is considering to purchase an equipment to be attached with the main manufacturing machine. The equipment will cost $6,000 and will increase annual cash inflow by $2,200. The useful life of the equipment is 6 years. After 6 years it will have no salvage value. The management wants a 20% return on all investments. Based on only this information:

a. Compute the net present value (NPV) of this investment project.

b. Should the equipment be purchased according to NPV analysis?

c. Explain the meaning of the NPV, and highlight the differences between national and multinational capital budgeting