If your required return is 13 percent, calculate the NPV today. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ 318,000.00 If your required return is 13 percent, calculate the NPV if you wait to purchase the machine until the indicated year. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
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Your company is deciding whether to invest in a new machine. The new machine will
increase cash flow by $318,000 per year. You believe the technology used in the
machine has a 10-year life; in other words, no matter when you purchase the machine, it
will be obsolete 10 years from today. The machine is currently priced at $1,710,000. The
cost of the machine will decline by $105,000 per year until it reaches $1,185,000, where
it will remain.
If your required return is 13 percent, calculate the NPV today. (Do not round.
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
NPV
$
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
If your required return is 13 percent, calculate the NPV if you wait to purchase the
machine until the indicated year. (A negative answer should be indicated by a minus
sign. Do not round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
$
$
$
318,000.00
$
$
$
15,545.43
120,545.43
225,545 43
31,200,545 43
30,150,545 43
2,910,545 43
4
Transcribed Image Text:Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $318,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,710,000. The cost of the machine will decline by $105,000 per year until it reaches $1,185,000, where it will remain. If your required return is 13 percent, calculate the NPV today. (Do not round. intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 If your required return is 13 percent, calculate the NPV if you wait to purchase the machine until the indicated year. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) $ $ $ 318,000.00 $ $ $ 15,545.43 120,545.43 225,545 43 31,200,545 43 30,150,545 43 2,910,545 43 4
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