FIN Ltd is a manufacturing company based on a tax free Island. They are considering whether to invest in a technology that will improve production of the cardboard boxes and packaging it manufactures and sells. They have provided you with the following information and asked you to make a recommendation on whether they should invest in this new technology. The company has estimated that the investment will cost €1,000,000 and there will be no depreciation. The company further estimates that if it were to invest in the technology, cash flows from increased sales would be €225,000 in the first year. It is estimated that these cash flows will then increase by fifteen per cent per year. The company believes that the new technology will be obsolete in six years and will have no residual value. Assume that the initial cost is paid now and all revenues are received at the end of each year. If the company requires an 18% return on this investment, would you recommend that they invest in the new technology? Use three investment evaluation techniques, one of which must be net present value analysis, to arrive at your answer. Explain your recommendation fully.
K4.
FIN Ltd is a manufacturing company based on a tax free Island. They are considering
whether to invest in a technology that will improve production of the cardboard
boxes and packaging it manufactures and sells. They have provided you with the
following information and asked you to make a recommendation on whether they
should invest in this new technology. The company has estimated that the
investment will cost €1,000,000 and there will be no
further estimates that if it were to invest in the technology, cash flows from
increased sales would be €225,000 in the first year. It is estimated that these cash
flows will then increase by fifteen per cent per year. The company believes that the
new technology will be obsolete in six years and will have no residual value. Assume
that the initial cost is paid now and all revenues are received at the end of each year.
If the company requires an 18%
that they invest in the new technology? Use three investment evaluation
techniques, one of which must be
answer. Explain your recommendation fully.
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