Question
SolarStar has decided to invest in a new robotic technology for solar energy equipment in their new solar-powered generators. They have been offered the following
SolarStar has decided to invest in a new robotic technology for solar energy equipment in their new solar-powered generators. They have been offered the following option by a large robotics manufacturer.
Cost: $15 million
SolarStar expects the following after-tax cash flows resulting from their ability to increase their prices and as well as their volume of future sales:
Year 1: $5 million
Year 2: $4 million
Year 3: $3 million
Year 4: $2 million
Year 5: $2 million
Year 6: $2 million
Year 7: $1 million
Year 8: $1 million
Year 9: $1 million
Answer the following questions based on the information given.
- If their discount rate/required rate of return is 7%, what is the net present value of the purchase?
- Should they purchase the technology?
- What is the payback period?
- If the criterion is that the project must pay back by 5 years, should the company purchase the technology?
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