The K-Nine dog food company is considering the purchase of additional canning equipment.They expect that adding the equipment will yield $200,000 at the end of the first year and $250,000 at the end of the second year and then nothing after that.At which of the following prices and interest rates would K-Nine buy the equipment?
A)$415,000 if the interest rate is 5%
B)$419,000 if the interest rate is 4%
C)K-Nine would buy the equipment in both cases.
D)K-Nine would not buy the equipment in either case.

Question

Quizplus · Accepted Answer

The NPV of the project is $419,000 at an interest rate of 4% and $415,000 at an interest rate of 5%. Since the NPV is positive in both cases, K-Nine would buy the equipment in both cases.

The K-Nine Dog Food Company Is Considering the Purchase of Additional