Calculate the net present value of the printer

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Reference no: EM132752626

Profiling (Pty) Ltd needs to replace one of its 3D printers. Management has identified an ideal replacement 3D printer. It is a high-tech 3D printer that is controlled and operated remotely.

They have estimated the net cash flows from investing in this printer as follows:

Year         Cash flow
Year 1      R170 000
Year 2     R185 000
Year 3     R220 000
Year 4    R250 000
Year 5     R200 000

Additional information:

  1. The initial required investment is R600 000.
  2. The company's cost of capital is 16%.

Required: Show all calculations and round off all final answers to the nearest whole number.

Problem 1: Use the information provided to calculate the net present value (NPV) of the printer using the current cost of capital as well as 20% as an alternative cost of capital.

Problem 2: Use the results of the calculations in 1 to calculate the internal rate of return (IRR) of the investment.

Problem 3: Should the company invest in this new printer? Give reasons for your answer.

Reference no: EM132752626

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