A company wants to determine whether it is profitable to invest in a new machine that costs
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Question:
A company wants to determine whether it is profitable to invest in a new machine that costs $100,000. The machine is expected to last for five years and have no salvage value at the end of its useful life. The company expects the machine to generate an annual cash inflow of $25,000. However, the company's cost of capital is 10%, and there is a 25% chance that the machine will break down in the first year and require repairs costing $20,000. Determine whether the company should invest in the machine.
Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
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