Sigma is thinking about purchasing a new clam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in the 2nd year, $5,000 in the 3rd year, and $3,000 in the 4th year. Should Sigma purchase this digger if its cost of capital is 12%? a. Yes, NPV = $5,084 b. Yes, NPV = $16,605 c. Yes, NPV = $3,176 d. Yes, NPV = $19,084

Answers

Answer 1

Answer:

a

Explanation:

Answer 2

Yes, Sigma should purchase the clam digger, because NPV = $5,084 (approx).

Given

Outflow = $14,000

Cash Flow    

Year 1      $9,000          

Year 2      $7,000

Year 3      $5,000

Year 4      $3,000

Required to calculate Should Sigma purchase this digger if NPV is positive =?

The required calculations are shown in the file given attached below.

NPV, or net present value, is a financial metric used to measure the whole value of an investment opportunity. The principle behind NPV is to forecast all of the upcoming financial inflows and outflows connected to investment, discount all of those upcoming cash flows to the present, and then add them all up.

Thus, Sigma should buy the clam digger because NPV = $5,084.

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Sigma Is Thinking About Purchasing A New Clam Digger For $14,000. The Expected Net Cash Flows Resulting

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