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Blanchard Company has an opportunity to invest $15,000 in a new automated lathe that will reduce annual

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Blanchard Company has an opportunity to invest $15,000 in a new automated lathe that will reduce annual operating costs by $2,300 per year and will have an economic life of 12 years.

1. Suppose Blanchard Company has a required rate of return of 10%. Compute the NPV of the investment and recommend to Blanchard Company whether it should purchase the lathe.

2. Suppose Blanchard Company has a required rate of return of 12%. Compute the NPV of the investment and recommend to Blanchard Company whether it should purchase the lathe.

3. How does the required rate of return affect the NPV of a potential investment?

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1 NPV 10 2300 68137 1567151 15000 67151 With a required ...View the full answer


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NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.

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