Question: 4) Lathe Inc. considers to buy a machine whose cost is 5 000 000 in 2021. The machine may be used for five years and

4) Lathe Inc. considers to buy a machine whose cost is 5 000 000 in 2021. The machine may be used for five years and its expected cashflows are as follows

2022 2 000 000

2023 3 000 000

2024 5 000 000

2025 4 000 000

2026 2 000 000

a) Is this investment feasible according to net PV method? How much value this investment may contribute to the value of the firm?

b) What is the exact payback period of that investment if we use discounted payback method. If the firms desired (target) payback period is 3 years, is that investment feasible

Note: Use 20% as relevant discount rate for both a and b

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