Should firms invest in the new equipment

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Reference no: EM133615952

Problem: Genetic engineering is considering the purchase of some new equipment that will cost $300000 installed. The equipment will produce a product that must be FDA approved and this will require at least two years. Year 1 and year 2, the company will have net cash outflow of $95000 and $50000. Year 3 to 5, the company will generate net cash inflows of $200000, $240000and $330000. At the end of 5 years the equipment and the product will be obsolete. If the firm's cost of capital is 15%, should they invest in the new equipment?

Reference no: EM133615952

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