Macy Co Is Considering the Investment of $86,000 in a New

question 23

Essay

Macy Co. is considering the investment of $86,000 in a new machine. The machine will generate cash flow of $18,500 per year for each year of its six-year life and will have a salvage value of $5,000 at the end of its life. Macy Co.'s cost of capital is 10 percent.
(a.) Calculate the net present value of the proposed investment. Ignore income taxes, and round all answers to the nearest $1.
(b.) What will the internal rate of return on this investment be relative to the cost of capital? Explain your answer.

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Definitions:

Volcanism

The geological process involving the eruption of molten rock, or magma, from below Earth's surface.

Inner Planets

The four planets closest to the Sun (Mercury, Venus, Earth, and Mars); synonym: terrestrial planets.

Outer Planets

Refers to the planets in the solar system that are located beyond the asteroid belt, including Jupiter, Saturn, Uranus, and Neptune.

Catastrophic Collision

A high-energy impact event between two celestial bodies or terrestrial objects causing significant changes or destruction.