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Alton Forge, a fabricator of hammered machine parts, wants to expand by producing larger machine parts. To do so, it needs to buy a large power hammer. This power hammer costs $ 1,350,000. When the hammer is installed, Alton Forge forecasts annual cashflows of: $ 300,000, 375, 000, 425, 000, 550, 000, and 650,000 for the first 5 years. Alton Forge's cost of capital is 10% per year. What is the net present value of this investment? Hint: What is the net present value of the future cashflows

Alton Forge, a fabricator of hammered machine parts, wants to expand by producing larger machine parts. To do so, it needs to buy a large power hammer. This power hammer costs $ 1,350,000. When the hammer is installed, Alton Forge forecasts annual cashflows of: $ 300,000, 375, 000, 425, 000, 550, 000, and 650,000 for the first 5 years. Alton Forge's cost of capital is 10% per year. What is the net present value of this investment? Hint: What is the net present value of the future cashflows

Essentials Of Investments
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
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Alton Forge, a fabricator of hammered machine parts, wants to expand by producing larger machine parts. To do so, it needs to buy a large power hammer. This power hammer costs $ 1,350,000. When the hammer is installed, Alton Forge forecasts annual cashflows of: $ 300,000, 375, 000, 425, 000, 550,000, and 650,000 for the first 5 years. Alton Forge's cost of capital is 10% per year. What is the net present value of this investment? Hint: What is the net present value of the future cashflows
Transcribed Image Text:Alton Forge, a fabricator of hammered machine parts, wants to expand by producing larger machine parts. To do so, it needs to buy a large power hammer. This power hammer costs $ 1,350,000. When the hammer is installed, Alton Forge forecasts annual cashflows of: $ 300,000, 375, 000, 425, 000, 550,000, and 650,000 for the first 5 years. Alton Forge's cost of capital is 10% per year. What is the net present value of this investment? Hint: What is the net present value of the future cashflows
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