11-A2.
A manager of the engineering department of Manchester University is contemplating acquiring 120 computers. The computers will cost $240,000 cash, have zero terminal salvage value, and a useful life of 3 years. Annual cash savings from operations will be $110,000. The required rate of return is 14%. There are no taxes.
1. Compute the NPV.
2. Should the engineering department acquire the computers? Explain
11-37
City View Restaurant is about to open at a new location. Operating plans indicate the following expected cash flows:
Outflows Inflows
Initial investment now $235,000 $ ——
End of year: 1 $150,000 $200,000
2 $200,000 $250,000
3 $250,000 $300,000
4 $300,000 $450,000
5 $350,000 $500,000
1. Compute the NPV for all these cash flows. This should be a single amount. Use a discount rate of 14%.
2. Suppose the minimum desired rate was 12%. Without further calculations, determine whether the NPV is positive or negative Explain.
