1. A machine will cost $80,000.

It has an expected life of 4 years with an anticipated scrap value

of $10,000. Expected net operating cash inflows each year are as follows:
Years Cash inflows ($)
1 20,000
2 30,000
3 40,000
4 10,000
Cost of capital 10% p.a. Calculate NPV of the investment and determine whether or not it should
be accepted.
2. Nive Ltd wants to expand its business and so it is willing to invest $10,000,000. The investment
is said to bring an inflow of $100,000 in the first year, $250,000 in the second year, $350,000 in
the third year, $265,000 in the fourth year and $415,000 in the fifth year. Assuming discount rate
of 9%, calculate NPV.
3. A business firm is considering the purchase of a new machine. Two machines X and Y are
available, each costing $50,000. Earnings after depreciation and taxes are as follows:
Years Cash Flow
Machine 1 Machine 2
1 15,000 5,000
2 20,000 15,000
3 25,000 20,000
4 15,000 30,000
5 10,000 20,000
Assuming 10% discount rate, evaluate the project using:
(a) Pay- back period
(b) Accounting rate of return
(c) Net present value

4. Warden Co plans to buy a new machine. The cost of the machine, payable immediately, is
$800,000 and the machine has an expected life of five years. Additional investment in working
capital of $90,000 will be required at the start of the first year of operation. At the end of five
years, the machine will be sold for scrap, with the scrap value expected to be 5% of the initial
purchase cost of the machine. The machine will not be replaced.
Production and sales from the new machine are expected to be 100,000 units per year. Each unit
can be sold for $16 per unit and will incur variable costs of $11 per unit. Incremental fixe
d costs arising from the operation of the machine will be $160,000 per year. Warden Co has an a
ftertax cost of capital of 11% which it uses as a discount rate in investment appraisal.
The internal rate of return of the investment is 16%. The company pays profit tax one year in a
rrears at an annual rate of 30% per year.
Tax‐allowable depreciation and inflation should be ignored.
Required: Calculate the net present value of investing in the new machine and advise
whether the investment is financially acceptable.