Question:

Capital investment decision: net present value?

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a company wants to invest 180,000 on a new machine. the investment must make at least a 20 percent return. given the folling projected cash flows:

Machine (180,000)-

Year 1 : 70,000

Year 2 : 60,000

Year 3 : 50,000

Year 4: 40,000

Year 5 : 30,000

Year 6: 20,000

need Factor?

Compute NPV?

Should the company make the investment?

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1 ANSWERS


  1. Based on the required 20% return, the NPV is negative 13,020.  Therefore the company should not make this investment.  

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