### Investment Analysis using Net Present Value**Project Details:**- **Machinery Cost:** $400,000- **Working Capital Required:** $20,000- **Annual Net Cash Receipts:** $80,000- **Required Rate of Return:** 10%- **Life of the Project:** 6 yearsThe analysis evaluates whether investing in the project is viable by examining the net present value (NPV).**Net Present Value (NPV):** ($60,320)#### Decision Making:The Net Present Value is negative, indicating a loss of $60,320 over the project's duration when considering the required rate of return. Based on the NPV, this investment would not be recommended as it does not meet the financial return expectations.This evaluation is crucial in capital budgeting, helping businesses assess the potential financial outcomes of investments.

Net present value(NPV) is the difference between present value of all cash inflows and initial…

Machinery cost Working capital required Annual net cash receipts Required rate of return Life of the project 6 years Using net present value, would you make this investment? $400,000 20,000 80,000 10% Net Present Value ($60,320)

Machinery cost Working capital required Annual net cash receipts Required rate of return Life of the project 6 years Using net present value, would you make this investment? $400,000 20,000 80,000 10% Net Present Value ($60,320)

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

### Investment Analysis using Net Present Value

**Project Details:**

- **Machinery Cost:** $400,000
- **Working Capital Required:** $20,000
- **Annual Net Cash Receipts:** $80,000
- **Required Rate of Return:** 10%
- **Life of the Project:** 6 years

The analysis evaluates whether investing in the project is viable by examining the net present value (NPV).

**Net Present Value (NPV):** ($60,320)

#### Decision Making:

The Net Present Value is negative, indicating a loss of $60,320 over the project's duration when considering the required rate of return. Based on the NPV, this investment would not be recommended as it does not meet the financial return expectations.

This evaluation is crucial in capital budgeting, helping businesses assess the potential financial outcomes of investments.

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