A small family business wants to expand and is planning to start an investment, which will cost an initial investment of $50,000. The father is confident that the investment will generate annual cash flows of $11,000 for the next 10 years. In exactly 5 years, the machine will need serious maintenance, which will cost $20,000. At the end of 10 years, the investment can be sold for $5,000. The MARR (Minimum Attractive Rate of Return) is 12% nominal annually, compounded semi-annually. 

a) What is the net present value of the investment?

 b) What is the investment profitability index? 

c) Should the company accept this investment or not?

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Answer rating: 100% (QA)

To evaluate the investment we will calculate the Net Present Value NPV Investment Profitability Index PI and determine whether the investment should b... View the full answer