An investment Jakob is contemplating the purchase of a special van in which he can travel and
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Question:
An investment
Jakob is contemplating the purchase of a special van in which he can travel and service plants in remote areas. He estimates the following information for the potential purchase.
Machine | |
Original outlay for purchase of the space (beginning of Year 1) | 76 000 |
Expected net cash inflow Year 1 | 12 000 |
Year 2 | 13 000 |
Year 3 | 14 000 |
Year 4 | 15 000 |
Estimate residual value | 17 000 |
Jakob thinks the cost of capital to be 7% and uses straight-line depreciation. He has sufficient funds to meet all capital expenditure requirements.
Required
- Calculate the net present value for the investment and state (with a justification of your answer) whether it should be accepted.
Related Book For
Making Hard Decisions with decision tools
ISBN: 978-0538797573
3rd edition
Authors: Robert Clemen, Terence Reilly
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