Nestle Ltd. Production department realized that one of their machines needs to be replaced and the following assets are proposed. Nestle has assigned $1.5 million dollars to purchase the asset(s). Nestle’s WACC is 8%.YearsAsset LAsset MAsset NInitial Costs$700,000$800,000$500,000Expected Cash Inflows: 2018300,000200,000 2019250,000200,000200,0002020200,000200,000200,0002021150,000200,000150,0002022 200,000150,000Requirement: Recommend which Asset(s) the company should purchase based on the Payback and Net Present Value Capital Budgeting Techniques. If the funds allow for the purchase of more than one asset, rank them from most favorable to least and select the ones to be purchased.

Net present Value is the difference between Present Value of cash Inflows and Initial Investment.…

Answered: Nestle Ltd. Production department…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 4PROB

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Nestle Ltd. Production department realized that one of their machines needs to be replaced and the following assets are proposed. Nestle has assigned $1.5 million dollars to purchase the asset(s). Nestle’s WACC is 8%.

Years	Asset L	Asset M	Asset N
Initial Costs	$700,000	$800,000	$500,000
Expected Cash Inflows:
2018	300,000	200,000
2019	250,000	200,000	200,000
2020	200,000	200,000	200,000
2021	150,000	200,000	150,000
2022		200,000	150,000

Requirement: Recommend which Asset(s) the company should purchase based on the Payback and Net Present Value Capital Budgeting Techniques. If the funds allow for the purchase of more than one asset, rank them from most favorable to least and select the ones to be purchased.

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