Question: Your company is deciding whether to invest in a new
Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $425,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $2,600,000. The cost of the machine will decline by $230,000 per year until it reaches $1,450,000, where it will remain. If your required return is 12 percent, should you purchase the machine? If so, when should you purchase it?
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