Purchase equipment in order to produce the goods

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Reference no: EM132061048

Please help me solve this question using the appropiate excel formulas in excel.

1. A firm is introducing a new line of fashion merchandise and needs to purchase equipment in order to produce the goods. The firm has estimated that if it purchases the equipment and produces the new line of merchandise, the new line will bring in cash flows of $600,000 a year for the next 7 years. The equipment will cost $3,500,000 “up front". After the 7 years, the equipment is expected to be worthless. The firm uses a discount rate of 15% to evaluate capital budgeting projects.

a. Use the NPV method to determine whether the project should be accepted. Make appropriate calculations using Excel functions so I can see all of your work. You must use time value functions in Excel for all time value computations.

b. Comment on whether the investment in the new equipment makes sense under NPV.

Reference no: EM132061048

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