Sara Company has the opportunity to invest in a new machinery, which would have a working lifetime of 5 years. The cost of the machinery is $120,000 and can be sold at the end of year 5 for $65,000

The new machine would generate the following increases in net cash flows.

In the first year of usage of the new plant would increase revenue by $15,000. For the following 4 years the revenue would increase at a rate of 10 per cent per annum.

Assuming Sara cost of capital is 9 per cent, calculate the NPV of the project. Should Sara buy the machine?

Answer rating: 100% (QA)

To calculate the net present value NPV of the project we need to determine the incremental net cash ... View the full answer