You have just finished a net present value analysis with the following results:

Question

You have just finished a net present value analysis with the following results: Initial cash payment for machine $100,000 Total present value of net cash flows $96,450 Discount rate used in analysis-18% Which of the following is correct? I buy the machine because the return on the investment exceeds 18%. I buy the machine because the return on the investment does not exceed 18%. I do not buy the machine because the return on the investment exceeds 18%. I do not buy the machine because the return on the investment does not exceed 18%. Save

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer I do not buy the machine because the return on investment does not exceed 18% Since NPV is negative -3,550 (96450 - 100,000) at discount rate 18% it means that return is less than 18%. Since we have used discount rate as 18% it means we want return more than 18% which is not possible with above option.

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