Store managers believe that they need another coffee machine. They give you the

Question

Store managers believe that they need another coffee machine. They give you the following numbers. IF the numbers are accurate the project does not add value. Consider the addition of value to the company a positive number for the excel function “=npv +cash flow at time zero”. If this number is positive, then the store managers are correct and you should authorize the purchase of the machine. time 0,1,2,3,4,5 cash flows   -$10,000 $3,000 $3,000 $3,000 $3,000 $3,000 Discount rate 10%. True means you authorize and false means you do not give the project the go ahead. True False

Explanation / Answer

Present value of cash inflow =PVAF@10%,5 * CF

                                 = 3.79079 * 3000

                              = $ 11372.36

NPV = 11372.36 - 10000 = $ 1372.36

The manager is True or correct ,The machine should be purchased as NPV is positive.

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