Should a company purchase a machine costing $15,000 with specified net incomes over four years, given a 15% borrowing rate?

Determining whether a company should purchase a machine costing $15,000 involves a financial analysis of the investment's potential returns compared to its costs, particularly considering the specified net incomes over the four years and the borrowing rate of 15%.

When evaluating the purchase, it is essential to calculate the net present value (NPV) of the future cash flows generated by the machine over the specified period. If the projected net incomes, when discounted back to present value using the 15% borrowing rate, do not exceed the initial cost of the machine, it indicates that the investment would not yield a sufficient return.

If the net present value of the future cash inflows from the machine is negative or zero, it suggests that purchasing the machine would not be a wise financial decision. This could be due to the future cash flows being too low or the costs associated with financing the machine being too high. Investing in such a machine would instead represent a financial burden rather than an asset that enhances the company's profitability.

In contrast, if the NPV of the machine's cash flows were to be positive, that would provide a strong argument in favor of the purchase. Given the importance of considering both the costs associated with the financing and the expected future cash flows, the conclusion