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A manufacturing firm plans to purchase a new piece of equipment for $50,000. To finance this, the firm will take out a one-year loan for the full amount at an annual interest rate of 8%. The firm projects that the new equipment will generate a total future return of $53,500 by the end of the year, at which point the loan must be fully repaid. Based on this information, should the firm proceed with the investment?
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Investment Decision for a New Machine
A manufacturing firm plans to purchase a new piece of equipment for $50,000. To finance this, the firm will take out a one-year loan for the full amount at an annual interest rate of 8%. The firm projects that the new equipment will generate a total future return of $53,500 by the end of the year, at which point the loan must be fully repaid. Based on this information, should the firm proceed with the investment?
A company finances a $10,000 project with a one-year loan at a 4% annual interest rate. If the project's future return is exactly $10,400, the company should proceed with the investment because it breaks even.
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