A new drill press is considered a possible new investment for Exron corporation if it generates an expected return of $1750 per year for the first five years and $2250 per year for the last five years. Its expected purchase price (including installation) is $9,890.
1. What is the drill press projects expected rate of return? Suppose Exron can borrow the necesary funds in the money and capital markets to make this investment at a cost of 14%.
2. Should it proceed with the project? If the required rate of return is 15.5%, what is the NPV of the drill press project and should they pursue the project any further?