Capital Investment Decision: Net Present Value Method
Tuen and Associates wants to buy an automated coffee roaster/grinder/brewer. This piece of equipment would have a useful life of six years, would cost $190,000, and would increase annual net cash inflows by $50,000. Assume that there is no residual value at the end of six years. The company’s minimum rate of return is 14 percent. Using the net present value method, prepare an analysis to determine whether the company should purchase the machine. (Hint: Use Table 2 in Appendix B.)