Zielinsky Company has an opportunity to invest $5,000 in a new automated lathe that will reduce annual
Question:
Zielinsky Company has an opportunity to invest $5,000 in a new automated lathe that will reduce annual operating costs by $1,000 per year and will have an economic life of seven years.
1. Suppose Zielinsky Company has a minimum desired rate of return of 5 percent. Compute the NPV of the investment and recommend to Zielinsky Company whether it should purchase the lathe.
2. Suppose Zielinsky Company as a minimum desired rate of return of 12 percent. Compute the NPV of the investment and recommend to Zielinsky Company whether it should purchase the lathe.
3. How does the desired rate of return affect the NPV of a potential investment?
Step by Step Answer:
1 NPV 5 1000 57864 578640 5000 78640 With a minimum desired rate of 5 the NPV is positive so this ...View the full answer
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu
