Riverside Furniture is contemplating the acquisition of a new wood-cutting machine:
1.Existing machine's salvage value: $10,000.
2.New machine cost: $150,000.
3.Working capital required: $25,000.
4.Yearly cash inflows: $40,000 for 5 years.
5.Required rate of return: 11%.
Steps:
1.Calculate the total initial investment.
2.Determine the annual cash inflows.
3.Compute the NPV.
4.Decide on the purchase based on NPV.