Flying High Inc. is trying to decide whether to invest in a new robot for its packaging line. The new robot will cost $370,000 and is expected to significantly increase efficiency and thus save the company $67,000 per year for the next eight years. At that time, the robot will be completely depreciated and may not have any salvage value. As part of the financial management team for Flying High, you are assigned to evaluate this proposal. A key part of your analysis will probably consist of a computation. What do you need to compute about the proposal?
A) breakeven point
B) net present value
C) total net cash flow
D) gamma coefficient

Question

Quizplus · Accepted Answer

To evaluate the proposal, we need to compute the net present value (NPV) of the investment. This takes into account the initial cost, cash inflows (savings), and the time value of money. The NPV calculation will help us determine if the investment is profitable and if it adds value to the company. A positive NPV would indicate that the investment should be made.