OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $4 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $500.000 per year in direct labor costs. The company requires a 10% return from its investments. (PV of $1. FV of $1. PVA of $1. and FVA of $1) (Use appropriate factor(s) from the tables provided.) a. Compute the proposed investment's net present value. b. Using the answer from part a, is the investment's internal rate of return higher or lower than 10%? Hint: It is not necessary to compute IRR to answer this question.
OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $4 million, has a 20-year life, and will have zero salvage value. If the system is implemented, the company will save $500.000 per year in direct labor costs. The company requires a 10% return from its investments. (PV of $1. FV of $1. PVA of $1. and FVA of $1) (Use appropriate factor(s) from the tables provided.) a. Compute the proposed investment's net present value. b. Using the answer from part a, is the investment's internal rate of return higher or lower than 10%? Hint: It is not necessary to compute IRR to answer this question.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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please answer both requirements
Transcribed Image Text:OptiLux is considering investing in an automated manufacturing system. The system requires an initial investment of $4 million, has a
20-year life, and will have zero salvage value. If the system is implemented, the company will save $500.000 per year in direct labor
costs. The company requires a 10% return from its investments. (PV of $1. FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s)
from the tables provided.)
a. Compute the proposed investment's net present value.
b. Using the answer from part a, is the investment's internal rate of return higher or lower than 10%? Hint. It is not necessary to
compute IRR to answer this question.
Complete this question by entering your answers in the tabs below.
Required A Required B
Compute the proposed investment's net present value.
Net present value
I
Required B >
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