Herky Foods is considering acquisition of a new wrapping machine. The initial investment is

QUESTION

Herky Foods is considering acquisition of a new wrapping machine. The initial investment is estimated at $1.25 million, and the machine will have a 5-year life with no salvage value. Using a 6% discount rate, determine the net present value (NPV) of the machine given its expected operating cash inflows shown in the following table. Based on the projects NPV, should Herky make this investment?YearCash inflow1$400,0002375,0003300,0004350,0005200,000
Herky Foods should make this investment as it provides positive Net Present Value of $ 139,677 Year Cash flow Discount factor @ 6% Discounted Amount 0 $ (1,250,000) 1 $ (1,250,000) 1 $ 400,000 0.9434 $ 377,358 2

$ 375,000 0.8900 $ 333,749 3 $ 300,000 0.8396 $ 251,886 4 $ 350,000 0.7921 $ 277,233 5 $ 200,000 0.7473 $ 149,452 Net Present Value $ 139,677

ANSWER:

CLICK REQUEST FOR  AN EXPERT SOLUTION