$201$ point

A company wants to replace a machine with a better version. The replacement machine will require a net investment of $$190,000$ and is expelted to generate free cash flow of $$100,000$ per year for the next five years. The company requires $12\%$ return on capital investments of this sort and desires a $24-$month pay back period. The existing machine would continue to function for the next five years if it is not replaced, but gradually become less useful. Free cash flows for the existing machine are forecasted to be $$80,000$ in year $1,$$$60,000$ in year $2,$ $$40,000$ in year $3,$$$20,000$ in year $4$ and $$10,000$ in year $5.$

Evaluate the project based on the criteria of net present value, internal rate of return and pay back period and indicate the correct responses below.

Choose all responses which are correct

The project should not be moved forward in the approval process

The project should be moved forward in the approval process

The project has a positive Net Present Value

The project has a Internal Rate of Return higher than the required rate

The project has a Pay Back Period longer than desired

The project has a Pay Back Period shorter than desired

The project has a negative Net Present Value

The project has an Internal Rate of Return less than the required rate