Calculate the Net Present Value of each of the following potential investments using a discount rate of
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Question:
Calculate the Net Present Value of each of the following potential investments using a discount rate of 12%. Assuming that this discount rate is the threshold rate for capital investment projects in your firm, determine which should or should not be considered for the upcoming capital budget and why they should or should not be considered.
A Plant Expansion:
- Initial cost $4,500,000
- Useful Life 20 Years
- Annual Sales 4,000 units
- Unit Costs $300
- Unit Selling Price $525
- A New Machine:
- Initial Cost $30,000
- Installation Cost $5,000
- Expected profit per unit produced $4
- Expected annual production 1800
- Life of Machine 6 Years
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