Answer to Question #273836 in Accounting for qianhe

Question

Lisa Company's required rate of return is 14%. The company is considering the purchase of a new machine that will save RM10,000 per year in cash operating costs. The machine will cost RM40,000 and will have an eight-year useful life with zero salvage value.

explain the meaning of cost of capital and its relevance in a net present value (NPV) analysis.

Answer 1

solved in Excel:

NPV > 0 the investment would add value to the firm, the project may be accepted.