A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $210,000. The present value of the future cash flows is $225,000. The company's desired rate of return used in the present value calculations was 12%. Which of the following statements is true?

Question

Quizplus · Accepted Answer

The fact that the present value of the future cash flows ($225,000) is greater than the amount to be invested ($210,000) means that the net present value is positive, indicating that the project is profitable. Additionally, the desired rate of return used in the present value calculations (12%) is less than the internal rate of return on the project, meaning that the project's return is higher than the company's desired rate of return. Therefore, the project should be accepted.

A Company Is Contemplating Investing in a New Piece of Manufacturing