The project manager of a steel manufacturing factory in Hamilton puts forth a proposal to the...

 

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The project manager of a steel manufacturing factory in Hamilton puts forth a proposal to the senior management for the immediate purchase of a specialized machine that costs $2,750,000. She forecasted that it would increase the profits through improved productivity by $1,200,000 in the first year, $1,150,000 in the second year, and $960,400 in the third year. At the end of the third year, the machine would have a salvage value of $500,000. Compute the NPV and determine if this is a sound investment proposal for a cost of capital of: A. 10%? B. 15%? C. 20%? The project manager of a steel manufacturing factory in Hamilton puts forth a proposal to the senior management for the immediate purchase of a specialized machine that costs $2,750,000. She forecasted that it would increase the profits through improved productivity by $1,200,000 in the first year, $1,150,000 in the second year, and $960,400 in the third year. At the end of the third year, the machine would have a salvage value of $500,000. Compute the NPV and determine if this is a sound investment proposal for a cost of capital of: A. 10%? B. 15%? C. 20%?

Answer rating: 100% (QA)

To determine the net present value NPV of the investment proposal we need to calculate the present value of the cash flows associated with the machines purchase and operation and compare it to the ini... View the full answer