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 5.5% 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.) O A. Accept 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 equal to or greater than $0. D. Reject the machine because the NPV is less 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 5.5% 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.) O A. Accept 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 equal to or greater than $0. D. Reject the machine because the NPV is less 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 5.5% 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. Accept 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 equal to or greater than $0.
D. Reject the machine because the NPV is less than $0.
Expert Solution
Step 1
The Net Present Value (NPV) method is a Capital Budgeting technique used to decide whether to invest or reject a project.
It uses the concept of the time value of money.
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