A company is contemplating investing in a new piece of manufacturing machinery.

Question

A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $170,000. The present value of the future cash flows is $185,000. The company’s desired rate of return used in the present value calculations was 10%. Which of the following statements is true?
a. The project should not be accepted because the net present value is negative.

b. The internal rate of return on the project is more than 10%.

c. The internal rate of return on the project is equal to 10%.

d. The internal rate of return on the project is less than 10%.

Explanation / Answer

a. The project should not be accepted because the net present value is negative.

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