Question

Problem 9-5 Option to Wait

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $310,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,650,000. The cost of the machine will decline by $102,000 per year until it reaches $1,140,000, where it will remain.

  

If your required return is 13 percent, calculate the NPV if you purchase the machine today. (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

  

NPV

$

   

If your required return is 13 percent, calculate the NPV if you wait to purchase the machine until the indicated year. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)

  

	NPV
Year 1	$
Year 2	$
Year 3	$
Year 4	$
Year 5	$
Year 6	$

   

Should you purchase the machine?

Yes No

  

If so, when should you purchase it?

Today One year from now Two years from now

Answer 1