Question

46.Your company operates a bulldozer that is several years old, and needs to be repaired frequently. You estimate that you can run it for only two more years, and that if you do, it will generate cash flows of $5,000 next year and $5,000 in the year after that. If you trade in the old bulldozer (forgoing these cashflows) and purchase a new one for $50,000 (the balance owing after the trade in allowance), you estimate the new one will generate cash flows in the next four years of $12,000, $14,000, $16,000 and $20,000, at which time the new bulldozer will be taken out of service and sold for $5,000. Is the purchase of the new bulldozer financially justified if the appropriate discount rate is 8%? (Assume all cash flows occur at the end of the year )

Select one:a. Yes, it generates a positive NPV of $4,191.b. Yes, it generates a positive NPV of $516.c. No, it generates a negative NPV of $4,725.d. No, it generates a negative NPV of $8,401.e. None of the above.

Answer 1

Answer : C) No, It generates a negative NPV of $ 4725.

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