Question: Effect of Required Rate Blanchard Company has an opportunity to invest $15,000 in a new automated lathe that will reduce annual operating costs by $2,300 per year and will have an economic life of 12 years.
1. Suppose Blanchard Company has a required rate of return of 10%. Compute the NPV of the investment and recommend to Blanchard Company whether it should purchase the lathe.
2. Suppose Blanchard Company has a required rate of return of 12%. Compute the NPV of the investment and recommend to Blanchard Company whether it should purchase the lathe.
3. How does the required rate of return affect the NPV of a potential investment?