A manufacturing firm is deciding whether to invest in a new printer that needs an initial investment of $140,000. This will increase cash flow in the first year by $80,000 and by $75,000 in the second year. Assume the interest rate is 10%.

a). What is the net present value of these cash flows? Will the firm invest in the printer?

b). If the interest rate falls to 4%, does the firm invest in the new technology? Why or why not? Show the necessary calculations to find your answer.

c). Shouldn’t we be using the marginal analysis to make this decision? Why or why not?

Answer rating: 100% (QA)

a NPV 140000 80000 x PF10 1 75000 x PF10 2 140000 80000 x 09091 75000 x 08264 140000 ... View the full answer