Question

Misty Higgin, manager of the Hass Music Hall, is considering the opportunity to expand the company’s concession revenues. Specifically, she is considering whether to install a popcorn machine. Based on market research, she believes that the machine could produce incremental cash inflows of $3,200 per year. The purchase price of the machine is $8,500. It is expected to have a useful life of three years and a $2,500 salvage value. Ms. Higgin has established a desired rate of return of 16 percent.

Required
a. Calculate the net present value of the investment opportunity.
b. Should the company buy the popcorn machine?



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  • CreatedFebruary 07, 2014
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