Use the following information to answer the next two questions:
A publisher is deciding whether to invest in a new printer that needs an initial investment of $500.This will increase cash flows in the first year by $600 for the next two years.
-If the cost of capital increased to 25%,does the firm invest in the printer?

Question

Use the following information to answer the next two questions:
A publisher is deciding whether to invest in a new printer that needs an initial investment of $500.This will increase cash flows in the first year by $600 for the next two years.
-If the cost of capital increased to 25%,does the firm invest in the printer?
A)Yes because the NPV>0
B)Yes because the NPV=0
C)Need information on the marginal benefits and costs
D)No because the NPV<0

Quizplus · Accepted Answer

The NPV (Net Present Value) is calculated by discounting the future cash flows at the cost of capital and subtracting the initial investment. With a cost of capital of 25%, the NPV is positive, indicating that the investment is worthwhile.

Use the Following Information to Answer the Next Two Questions