Vista Company wants to replace one of its older production machines.The estimated cost is $180,000.Using a discount rate of 18%,the company calculates a net present value of the new machine to be negative $10,000.Based on this information which of the following statements is true?

Question

Quizplus · Accepted Answer

The net present value of the new machine is negative, which means that the cost of the machine is higher than the expected return on the investment. However, if the actual purchase price is less than $170,000, the net present value will be positive and the investment will be profitable. Therefore, option C is the correct choice. Option A is incorrect as a higher discount rate would decrease the net present value further. Option B is incorrect as the discount rate does not represent the guaranteed rate of return, but rather the rate at which future cash flows are discounted. Option D is incorrect as the internal rate of return is not given in the information provided.

Vista Company Wants to Replace One of Its Older Production