Mansfield Motors is evaluating a capital investment opportunity. This project would require an initial investment of $30,000 to purchase one machine and $10,000 to purchase the other machine (both machines are required). The project equipment will have a residual value at the end of its life of $3,000. The useful life of the equipment is 5 years. The new project is expected to generate additional net cash inflows of $12,000 per year for each of the five years. Mansfield Motors' required rate of return is 14%. The net present value of this project is closest to

Question

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The net present value (NPV) of the project can be calculated using the formula for NPV, which involves discounting the future cash inflows back to their present value at the required rate of return and subtracting the initial investment. The initial investment is the sum of the costs of both machines, which is $30,000 + $10,000 = $40,000. The annual net cash inflow is $12,000 for 5 years, and the residual value of $3,000 at the end of year 5 also needs to be considered. Using a financial calculator or NPV formula with a 14% discount rate, the NPV of this project is closest to $(361), indicating that the project would slightly decrease the value of the company if undertaken.

Mansfield Motors Is Evaluating a Capital Investment Opportunity