A. 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 $1300. However, once built, the machine will last forever and will require no maintenance. The machine takes one year to build and it will cost $26000 to build. Your buddy wants to know if he should invest the money to construct it. If the interest rate is 4.0% per year, what should your buddy do?
A1. Calculate the NPV of the machine?
B. Your buddy has found a way to improve the machine. Everything else equal as in (a), the amount of produced money will increase every year by 1%. Calculate the NPV for this improved machine.? Calculate the NPV for this improved machine.
C. Your buddy is interested to know the IRR for (b) WHAT IS the IRR of the machine ?