A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $170,000. The present value of the future cash flows is $185,000. The company's desired rate of return used in the present value calculations was 10%. Which of the following statements is true?

Question

Quizplus · Accepted Answer

Since the present value of the cash flows is greater than the amount invested, the project has a positive net present value, indicating that it is expected to generate more cash than the amount invested. The desired rate of return used in the present value calculation was 10%, and the present value of cash inflows exceeded the amount invested, indicating that the internal rate of return is more than 10%. Therefore, option C is correct, and the company should consider investing in the new manufacturing machinery because it would generate a return greater than the desired rate of return of 10%.

A Company Is Contemplating Investing in a New Piece of Manufacturing