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Compute the net present value

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Question - ABC is considering purchasing a printing machine for £10,000 on 31 December 2021, on the last day of its financial year end. The machine generates cash flows of £7,000 per annum and will be sold for £2,000 on 31 December 2023. The company pays tax at 17% and capital allowances are available at 18% per annum on a reducing balance basis.

The expected returns on the stock market are 12% and the Bank of England base rate is 200 basis points.

Requirements -

a) Calculate the Net Present Value of the printing machine, if the company has a beta of 1.5.

b) If accepting the machine doubles the company's beta to 3.0, compute the Net Present Value.

Reference no: EM132543624

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