A company is considering purchasing equipment for a new product line. The initial investment is R1,500,000. The equipment needs an upgrade after 5 years, this will cost another R750,000. The incremental cashflows for the next 10 years will be R500,000 per year, starting from the end of the first year. The investment period is 10 years. The company's WACC is 12%. Calculate the NPV and the MIRR for the project. Should the company invest in the equipment?

A company is considering purchasing equipment for a new product line. The initial investment is R1,500,000. The equipment needs an upgrade after 5 years, this will cost another R750,000. The incremental cashflows for the next 10 years will be R500,000 per year, starting from the end of the first year. The investment period is 10 years. The company's WACC is 12%. Calculate the NPV and the MIRR for the project. Should the company invest in the equipment?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

7. A company is considering purchasing equipment for a new product line. The initial investment is
R1,500,000. The equipment needs an upgrade after 5 years, this will cost another R750,000. The
incremental cashflows for the next 10 years will be R500,000 per year, starting from the end of the first
year. The investment period is 10 years. The company's WACC is 12%.
Calculate the NPV and the MIRR for the project. Should the company invest in the equipment?

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