Van Nuys Company is considering the purchase of a new machine which will cost $7,370. The machine will provide revenues of $4,000 per year. The cash operating costs will be $2,000 per year. The new machine will have a useful life of six years. The company's cost of capital is 12 percent. Ignore income taxes. Should the company buy the new machine? Yes, because NPV3D0 and IRR0 and IRR>Cost of Capital No, because NPV>0 and IRR0 and IRR>Cost of Capital Yes, because NPV = IRR
Van Nuys Company is considering the purchase of a new machine which will cost $7,370. The machine will provide revenues of $4,000 per year. The cash operating costs will be $2,000 per year. The new machine will have a useful life of six years. The company's cost of capital is 12 percent. Ignore income taxes. Should the company buy the new machine? Yes, because NPV3D0 and IRR0 and IRR>Cost of Capital No, because NPV>0 and IRR0 and IRR>Cost of Capital Yes, because NPV = IRR
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...
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![Van Nuys Company is considering the purchase of a new machine which will cost $7.370.
The machine will provide revenues of $4,000 per year. The cash operating costs will be
$2,000 per year. The new machine will have a useful life of six years. The company's cost
of capital is 12 percent. Ignore income taxes.
Should the company buy the new machine?
Yes, because NPV=0 and IRR<Cost of Capital
Yes, because NPV>0 and IRR>Cost of Capital
No, because NPV>0 and IRR<Cost of Capital
O No, because NPV>0 and IRR>Cost of Capital
O Yes, because NPV = IRR
Question 4](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff20bf9de-03a3-4ff1-b6cb-4018cf63050d%2Fb55097d3-479b-438d-8cdf-426440fc6741%2Fxjmegve_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Van Nuys Company is considering the purchase of a new machine which will cost $7.370.
The machine will provide revenues of $4,000 per year. The cash operating costs will be
$2,000 per year. The new machine will have a useful life of six years. The company's cost
of capital is 12 percent. Ignore income taxes.
Should the company buy the new machine?
Yes, because NPV=0 and IRR<Cost of Capital
Yes, because NPV>0 and IRR>Cost of Capital
No, because NPV>0 and IRR<Cost of Capital
O No, because NPV>0 and IRR>Cost of Capital
O Yes, because NPV = IRR
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