A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows is $143,000. Should the company invest in this project?

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by subtracting the initial investment from the present value of future cash flows.

NPV = Present Value of Future Cash Flows - Initial Investment

NPV = $143,000 - $150,000

NPV = -$7,000

Since the NPV is negative, the project is not expected to generate enough cash to cover the initial investment and is not a good investment. Therefore, the best choice is D.

A Company Is Contemplating Investing in a New Piece of Manufacturing