Your friend in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year to manufacture $100. However, once built, the machine will last forever and will require no maintenance. The machine can be built immediately, but it will cost $1,000 to build. Your friend wants to know if he should invest the money to construct it. If the interest rate is 4.0% per year, what should your friend do? The NPV of the machine is $ (Round to the nearest dollar.) What should your friend do? (Select the best choice below.) A. Reject the machine because the NPV is equal to or greater than $0. B. Accept the machine because the NPV is equal to or less than $0. C. Reject the machine because the NPV is less than $0. D. Accept the machine because the NPV is equal to or greater than $0.
Your friend in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year to manufacture $100. However, once built, the machine will last forever and will require no maintenance. The machine can be built immediately, but it will cost $1,000 to build. Your friend wants to know if he should invest the money to construct it. If the interest rate is 4.0% per year, what should your friend do? The NPV of the machine is $ (Round to the nearest dollar.) What should your friend do? (Select the best choice below.) A. Reject the machine because the NPV is equal to or greater than $0. B. Accept the machine because the NPV is equal to or less than $0. C. Reject the machine because the NPV is less than $0. D. Accept the machine because the NPV is equal to or greater than $0.
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
Transcribed Image Text:Your friend in mechanical engineering has invented a money machine. The main drawback of the machine is that it
is slow. It takes one year to manufacture $100. However, once built, the machine will last forever and will require no
maintenance. The machine can be built immediately, but it will cost $1,000 to build. Your friend wants to know if he
should invest the money to construct it. If the interest rate is 4.0% per year, what should your friend do?
The NPV of the machine is $
(Round to the nearest dollar.)
What should your friend do? (Select the best choice below.)
A. Reject the machine because the NPV is equal to or greater than $0.
B. Accept the machine because the NPV is equal to or less than $0.
C. Reject the machine because the NPV is less than $0.
D. Accept the machine because the NPV is equal to or greater than $0.
Expert Solution
Introduction
While calculating net present value of the project where the project is expected to generate future cash flow for an infinite period of time, we are required to calculate net present value of the project by dividing future cash flows by the prescribed interest rate.
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