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Using NPV to make capital investment decisions Holmes Industries is deciding whether to automate one phase...

Using NPV to make capital investment decisions

Holmes Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will cost $910,000. Projected net cash inflows are as follows:

Year 1

$ 262,000

Year 2

254,000

Year 3

222,000

Year 4

215,000

Year 5

200,000

Year 6

175,000

Requirements

1. Compute this project’s NPV using Holmes’s 14% hurdle rate. Should Holmes invest in the equipment? (Compute and provide NPV and write out your conclusion regarding this investment)

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