Question

1. Your company is deciding whether to invest in a new machine.  The new machine will increase CF by $8 million per year.  You believe the technology used in the machine has 8 year life (so, no matter when you purchase it – it will be obsolete 10 years from today, not the day your investment starts).  The machine is currently priced at $26 million.  The price of the machine will decline by $5 million per year until it reaches $11 million, where it will remain.  If your required return is 10%, should you purchase the machine?  If so, when?

Answer 1

Yes Machine Should be purchased.because net Present value of Machine is positive.

Detail Working for you refrence.

Computation of NPV ( $ in Million)
Year	Cash Flow	PVIF	PV
0	-$26.00	1.0000	-$26.00
1	$8.00	0.9091	$7.27
2	$8.00	0.8264	$6.61
3	$8.00	0.7513	$6.01
4	$8.00	0.6830	$5.46
5	$8.00	0.6209	$4.97
6	$8.00	0.5645	$4.52
7	$8.00	0.5132	$4.11
8	$19.00	0.4665	$8.86
Net Present Value			$21.81

Det