Should nate accept the project

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Manager of the Plate division for the Great Slate Manufacturing Company, has the opportunity to expand the division by investing in additional machinery costing $320,000. He would depreciate the equipment using the straight-line method and expects it to have no residual value. It has a useful life of six years. The firm mandates a required rate of return of 16% on investments. Nate estimates annual net cash inflows for this investment of $100,000 and an investment in working capital of $5,000 that will be returned at the project's end.

Required

Calculate the NPV of this investment.

Calculate the AARR for this investment.

Should Nate accept the project? Will Nate accept the project if his bonus depends on achieving an AARR of 16%? How can this conflict be resolved?

Reference no: EM133342258

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