Multiple Choice
Use the following setup for question
A cloth manufacturing firm is deciding whether or not to invest in new machinery.The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000.The firm's current fixed costs are $9,000 and current marginal cost are $15.The firm currently charges $18 per unit.
-Ricky is thinking about borrowing $10,000 from Fred.He promises Fred cash flows of $5000 for the next three years.If Fred's cost of capital is 10%,what is the Net Present Value of the investment for Fred?
A) -$126.55
B) $1,342.76
C) $2,434.26
D) -$1,322.31
Correct Answer:
Verified
Correct Answer:
Verified
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