Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo which will require the purchase of new mixing machinery. The machinery will cost $375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of year 6. A $40,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate annual net cash inflows of $85,000 per year for each of the 10 years. Axillar's discount rate is 16%.

Required:

1. Prepare a schedule to compute the net present value of this investment opportunity?

2. Should Axillar purchase the new machine? Explain your decision.

Answer rating: 100% (QA)

1 Item Years Amount 16 factors NPV Cost of machinery Now 375000 1000 3... View the full answer