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A manufacturing firm is deciding whether or not to invest in a new printer that needs an initial investment of $150,000.The investment would increase cash flows in the first year by $80,000 and in the second year by $75,000.
-If the cost of the capital is 9%,is the investment feasible?

Question

​Use the following setup for the next question.
A manufacturing firm is deciding whether or not to invest in a new printer that needs an initial investment of $150,000.The investment would increase cash flows in the first year by $80,000 and in the second year by $75,000.
-​If the cost of the capital is 9%,is the investment feasible?
A)​Yes because the NPV>0
B)Yes because the NPV=0
C)No because the NPV<0           
D)​Need information on the marginal benefits and costs

Quizplus · Accepted Answer

To determine if the investment is feasible, we need to calculate the Net Present Value (NPV). Using a discount rate of 9%, we calculate the NPV as follows:
NPV = (-$150,000) + ($80,000/1.09) + ($75,000/1.09^2) = -$150,000 + $73,394.50 + $65,695.68 = -$10,909.82
Since the NPV is negative, the investment is not feasible. Therefore, the correct choice is (C) No because the NPV<0.

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