Question: Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year

Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year to manufacture $70. However, once built, the machine will last for 20 years and will require no maintenance. The machine takes one year to build and it will cost $1,000 to build. Your buddy wants to know if he should invest the money to construct it. If the interest rate is 5% per year, what should your buddy do?

a. To make the decision you need to calculate the net present value (NPV) of the machine.

The NPV of the machine is $. (round to the nearest dollar, if negativ use -)

b. You convince your friend to improve the machine so that the amount of produced money will increase every year by 2% over the 20 years.

The NPV of the new machine is $. (round to the nearest dollar, if negativ use -)

c. What is the IRR of the machine in b.?

The IRR of the machine is %. (round to two decimals)

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