Your buddy in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year to manufacture $90. However, once built, the machine will last for 20 years and will require no maintenance. The machine takes one year to build and it will cost $1,000 to build. Your buddy wants to know if he should invest the money to construct it. If the interest rate is 6% per year, what should your buddy do?
The NPV of the machine is $. (round to the nearest dollar, if negativ use)
b. You convince your friend to improve the machine so that the amount of produced money will increase every year by 2% over the 20 years. The NPV of the new machine is $. (round to the nearest dollar, if negativ use )
c. What is the IRR of the machine in b.?