1) Brass Knuckle Company wants to buy a new machine which will not increase its revenues, but that will reduce its costs by $10,000 per year. The machine will cost $60,000 and will have a useful life of nine years. At the end of the machine's useful life, it will have no salvage value. Brass Knuckle wants an 11% rate of return. Ignoring the effects of taxes, calculate the net present value of the investment. Should Brass Knuckle make this investment?
Your response should be at least 75 words in length. For problems, be sure to answer all questions and provide all requested information.
2) In the context of present value analysis, what is the discount rate? How does the discount rate affect the present value calculation? If the present value of a future return is calculated using a discount rate of 8%, what can we expect the present value analysis to reveal if the discount rate is changed to 10%? What if the discount rate is changed to 6%?
3) How does cash flow affect the evaluation of an investment? If an initial investment will be $100,000, which is better, a one-time return of $120,000 received in one year after the investment is made, or a return of $10,000 every month for that one year?
4) Scuba Supply Company is considering making an investment of $1,000,000 and estimates that the result of the investment will yield the following returns over the next five years:
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Year 1
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($500,000) - a loss
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Year 2
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$200,000
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Year 3
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$610,000
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Year 4
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$740,000
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Year 5
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$800,000
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Estimate the internal rate of return on this investment.
For problems, be sure to answer all questions and provide all requested information. Your response should be at least 75 words in length.