1. A company is deciding whether or not to buy a machine. The machine costs $45,000 and is expected to generate net cash flow for the business as follows: Year 1 $12,000 Year 2 $18,000 Year 3 $26,000 The company’s applicable interest rate is 12% on the machine That is, the company will only invest in the machine if the cash flow it receives generates a return of 12% or more. (In practice this rate is often based on the company’s cost of capital). Should the company buy the machine? Why or why not?

Answer rating: 100% (QA)

Whether the company should buy the machine depends on the Net Present Value NPV of the cash flow gen... View the full answer