Corporation D is considering the purchase of a robot for assistance with the manufacture of engines for recreational boats. The estimated net extra income from using the robot is the following: Year 1 2 3 Net Income $200,000 $250,000 $275,000. Assume the robot life is three years.
a. What is the net present value of the estimated extra net income from the new robot. Corporation D uses a 10% discount rate for internal calculations estimating the value of assets. Accordingly, use 10% to calculate the net present value of the net income.
b. If the robot actually costs $400,000, should Corporation D purchase the robot?