Chapter 7, Problem 5QAP

Summary Introduction

Adequate information:

Increased cash flow = $435,000

Life of the machine, t = 10 years

Initial cost = $2,800,000

Required return, r = 9%

Each year the cost of the machine will decline by $215,000 until reaches $2,155,000.

To compute: Whether the machinery should be purchased and when it should be purchased.

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.