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


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.