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problem: At present, demand is so high for Anderson Electric's products that the company cannot manufacture enough inventories to satisfy demand. Consequently, Anderson is considering buying a new machine that will raise its production level. The firm's management estimates that the new machine will create the following net cash flows during its lifetime:

Year

Net Cash Flow, CF

1

$18,000

2

12,000

3

15,000

4

10,000

5

10,000

6

10,000

[A] If Anderson normally requires a 12% return from such projects, find out the maximum amount it should pay for the machine?

[B] How would your answer to part [A] change if the appropriate rate of return is 15%?

Basic Finance, Finance

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