Use the information below to answer the following questions.
Han Ltd supplies chilli paste to large supermarket chains. The company is currently considering scrapping the old processor and investing in a new processor. Information about the investment is as follows: $$\begin{array} { l r }
\text { Initial investment in processor } & \$ 105,000 \
\text { Operating cash flows over next 5 years: } & \
\quad \text { Cash receipts } & \$ 80,000 \
\quad \text { Cash payments } & \$ 40,000 \
\text { Residual value of processor in 5 years } & \$ 5,000 \
\text { Required rate of return } & 8 \% \
\text { Depreciation per antum } & \$ 20,000
\end{array}$$
-Refer to the table above. Using the Net Present Value approach the management of Han Ltd will make which of the following decisions?

Question

Use the information below to answer the following questions.
Han Ltd supplies chilli paste to large supermarket chains. The company is currently considering scrapping the old processor and investing in a new processor. Information about the investment is as follows: $$\begin{array} { l r } 
\text { Initial investment in processor } & \$ 105,000 \
\text { Operating cash flows over next 5 years: } & \
\quad \text { Cash receipts } & \$ 80,000 \
\quad \text { Cash payments } & \$ 40,000 \
\text { Residual value of processor in 5 years } & \$ 5,000 \
\text { Required rate of return } & 8 \% \
\text { Depreciation per antum } & \$ 20,000
\end{array}$$
-Refer to the table above. Using the Net Present Value approach the management of Han Ltd will make which of the following decisions?

Quizplus · Accepted Answer

The Net Present Value (NPV) of the investment is positive, indicating that the investment is expected to generate a return higher than the required rate of return of 8%. This is determined by calculating the present value of the cash inflows (net cash flows from operations and the residual value) and subtracting the initial investment. Positive NPV suggests that the company should accept the investment proposal and purchase the new processor.

Use the Information Below to Answer the Following Questions -Refer to the Table Above