Smart Bumpkins wants to increase production by adding new equipment. The cost of the upgrade is $190,000 and expected cash flows from the new upgrade are expected to be as follows over the next 6 years and the risk free rate is 5%. Should the company upgrade?
A) Yes, the CNPV is $195,196.06
B) Yes, the CNPV is $83,775.16
C) No, the CNPV is -$75,522.84
D) No, the CNPV is -$42,175.93

Question

Smart Bumpkins wants to increase production by adding new equipment. The cost of the upgrade is $190,000 and expected cash flows from the new upgrade are expected to be as follows over the next 6 years and the risk free rate is 5%. Should the company upgrade? 
A) Yes, the CNPV is $195,196.06 
B) Yes, the CNPV is $83,775.16 
C) No, the CNPV is -$75,522.84 
D) No, the CNPV is -$42,175.93

Quizplus · Accepted Answer

Solution: 11ea10f6_a154_7f3f_b6b3_1ddfb79c8650_TB2040_00 CF₀ -190,000 CF₁ 38,250 CF₂ 36,000 CF₃ 56,250 CF₄ 77,000 CF₅ 66,000 CF₆ 55,000 I/Yr 5 CNPV = $83,775.16

Smart Bumpkins Wants to Increase Production by Adding New Equipment