A company is considering buying a new machine. Specific details: Initial Investment$400,000 Annual Cash Revenues$375,000 Annual Cash Expense$262,000 Expected Life5Years Salvage Value$0 Discount Rate10% All cash flows are after tax. 4Compute the investment's NPV, using the discount rate 5Calculate the investment's Internal Rate of Return 6Is this a good investment for the firm? Why or why not?

NPV is the difference between the present value of cash inflow and present value cash outflow. Calculation of NPVIRR is the rate at which NPV is equals to zero. Calculation of IRRYes this is a good investment as the NPV is positive .

Answered: A company is considering buying a new…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A company is considering buying a new machine. Specific details:

Initial Investment	$400,000

Annual Cash Revenues	$375,000

Annual Cash Expense	$262,000

Expected Life	5	Years

Salvage Value	$0

Discount Rate	10%

All cash flows are after tax.

4	Compute the investment's NPV, using the discount rate

5	Calculate the investment's Internal Rate of Return

6	Is this a good investment for the firm? Why or why not?

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