Asked by Evelyn Domingo on Jun 01, 2024
Verified
T-Bone Company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows is $141,000. Should the company invest in this project?
A) yes, because net present value is +$9,000
B) yes, because net present value is -$9,000
C) no, because net present value is +$9,000
D) no, because net present value is -$9,000
Net Present Value
The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to assess the profitability of investments.
Manufacturing Machinery
The equipment and machines used in the process of producing goods in manufacturing facilities.
Future Cash Flows
Estimates of future financial transactions that involve the inflow or outflow of money from a particular operation or investment.
- Acquire knowledge on the methodologies and calculations related to the net present value and present value index in investment decision-making.
Verified Answer
KR
Kaylin RicciJun 07, 2024
Final Answer :
D
Explanation :
The net present value is calculated by subtracting the initial investment from the present value of the future cash flows. In this case, the net present value is -$9,000, indicating that the project is not expected to generate enough cash flows to cover the initial investment and provide a return. Therefore, the company should not invest in this project.
Learning Objectives
- Acquire knowledge on the methodologies and calculations related to the net present value and present value index in investment decision-making.