Question

A company is thinking whether to buy a new machine or build a new machine itself in the factory. The following information is available about the two projects:

A.     NPV of buying new machine = Rs. 23,000

B.     NPV of building new machine = Rs. 61,000

The company should accept which of these two projects?

A Only A Correct Answer Incorrect Answer
B Either A or B Correct Answer Incorrect Answer
C Neither A or B Correct Answer Incorrect Answer
D Only B Correct Answer Incorrect Answer
E Can not be determined Correct Answer Incorrect Answer

Solution

We should the project with higher NPV. Higher NPV helps in maximizing the wealth of shareholders.

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