Question: 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, calculate 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%?