Your company is considering the purchase of a new equipment. The equipment costs $50,000 and your analysis indicates that the PV of the future cash flow from the equipment is $45,000. Thus the NPV of the equipment is −$5,000. This estimated NPV is based on some initial numbers provided by the manufacturer plus some creative thinking on the part of your financial analyst.
The seller of the new equipment is offering a course on how it works. The course costs $1,500. You estimate that the σ of the equipment’s cash flows is 30%, the risk-free rate is 6%, and you will have another half year after the course to purchase the equipment at the price of $50,000. Is it worth taking the course?
