A new machine cost $500,000 and will produce net inflows of $100,000 pa for eight years, starting at time 3.
The machine will be located in an old building which cost $1million six years ago. The building could be sold now for $1.5million or for $4.0 million at the end of the project.
In addition to any costs above, to use the manufacturing process the company will have to pay a royalty of $1,000 pa
forever, starting now, for the use of a patent.
Using the NPV method and a discount rate of 10%, is the project worthwhile?