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What is the minimum economic life of the machine

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Reference no: EM132715450

Investment Decision with Unknown Economic Life

Cervantes Company is considering an investment in a new machine. Managers at the company are uncertain about the economic life of the machine, because of the speed of innovation in the technology. The machine requires an investment of $2 million. After-tax cash flows are estimated to be $442,674 each year the machine is operating (and not obsolete). The company uses a 10 percent discount rate in evaluating capital investments.

Problem 1: What is the minimum economic life of the machine (in whole years) that would be required for it to have a positive net present value?

Reference no: EM132715450

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