A firm considers to buy a new machine whose expected lifetime is 6 years. The cost...
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A firm considers to buy a new machine whose expected lifetime is 6 years. The cost of the machine is $ 3 000 000 which is paid in 2023. The expected cash flows of this investment are as follows: 2024: $700 000 2025: $800 000 2026: $1200000 2027: $1300 000 2028: $ 900 000 2029: $ 600 000 a) Find the net present value of this investment using a discount rate of 18% h b) Should the firm accept or reject this investment (write accept or reject as your answer) ? c) What is the expected contribution of that investment to the value of the firm (give a numerical answer) ? d) Find the PI value (profitability index) using the cost of investment and the expected cashflows of this problem and mention if the investment is accepted or rejected. A firm considers to buy a new machine whose expected lifetime is 6 years. The cost of the machine is $ 3 000 000 which is paid in 2023. The expected cash flows of this investment are as follows: 2024: $700 000 2025: $800 000 2026: $1200000 2027: $1300 000 2028: $ 900 000 2029: $ 600 000 a) Find the net present value of this investment using a discount rate of 18% h b) Should the firm accept or reject this investment (write accept or reject as your answer) ? c) What is the expected contribution of that investment to the value of the firm (give a numerical answer) ? d) Find the PI value (profitability index) using the cost of investment and the expected cashflows of this problem and mention if the investment is accepted or rejected.
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To calculate the Net Present Value NPV of the investment we need to discount each cash flow to its p... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation
ISBN: 978-0324302950
6th edition
Authors: Clyde P. Stickney
Posted Date:
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