Question

1) Metal Works, Inc. is contemplating the purchase of a new milling machine. The purchase price of the new machine is $60000 and its annual operating cost is $2675.67. The machine has a life of seven years, and it is expected to generate $15000 in revenues in each year of its life. Use annual compounding. 4) The lower the interest (discount) rates are a) the less value individuals place on future dollars. b) the more value individuals place on future dollars. c) the less investments will take place. d) does not affect the investment strategy 0 1 2 3 4 5 6 7 NPV Revenue Cost Annual CF 5) Individuals that are impatient and want quick returns on their actions might a) be described as having high discount rates. b) be described as having low discount rates. c) Likely be persistent savers. d) Both a) and c). e) Both b) and c) PV @ 8% PV @ 10% PV @ 12% 2) What is the present value of the seventh-year annual cash flow, if the discount rate is a) 8% per year? b) 10% per year? c) 12% per year? 3) What is the net present value of this investment if the discount rate is a) 8% per year? b) 10% per year? c) 12% per year? Interpret your results:

Answer 1

When the discpunt rate is more the Net present value is less as the return required by investors is more