Question

47.Your company wants to purchase a 3D printer at a cost of $15,000. It estimates it can generate cash inflow in the year following purchase of $12,000. In the next a cash outflow of $4,000 will occur because the printer will require expensive maintenance and a software update. In the printer’s final year of its useful life it will generate cash flow of a $10,000. The machine will then be scrapped. Is the purchase financially justifiable 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 $620.b. No, it generates a negative NPV of $850.c. No, it generates a negative NPV of $1,244.d. None of the above.

Answer #1

Calculation of NPV of 3D printer:

Particulars | Cash Flow (1) | Discount factor @ 8% (2) | Discounted cash flows (3) (1*2) |

Purchase of printer (Cash outflow) (Y0) (Initial investment) | -15,000 | 1 | -15,000 |

Cash inflow in First year (Y1) | 12,000 | 1/1.08= 0.926 | 11,110 |

Cash outflow in second year (Y2) | -4000 | 1/1.08*1/1.08=0.857 | -3429 |

Cash inflow in 3rd year (Y3) | 10,000 | 1/1.08*1/1.08*1/1.08=0.794 | 7939 |

Total | 620 |

NPV = Discounted Cash inflows - Discounted Cash outflows- Initial investment

= 11,110+7939-3429-15000

=19,049-18429

= 620

NPV = 620

Since, NPV is positive we can accept the purchase

Answer: a

Yes, it generates a positive NPV of $620

46.Your company operates a bulldozer that is several years old,
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If you trade in the old bulldozer (forgoing these cashflows) and
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Your company is planning to purchase an HP 3D printer that costs
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per year. The discount rate being used is 6%. Is the investment in
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What is the net present value of this potential purchase? What is
the IRR?

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