FRIENDLY CARDS, INC.

Question # 2: Perform an NPV analysis to see if Friendly Cards should purchase the envelope machine (you will need to come up with a reasonable WACC).

Solution:

Purchase of envelop machine:

Friendly Card is bearing millions of cost every year on envelops purchasing. So it is considering the option of purchasing an envelope machine rather than envelops. As the NPV calculated by discounting the cash flows of 8 years at a wacc of 7.9% is positive, so I think it’s a good investment to purchase an envelope machine. Positive negative value is an indicator that cash inflows by purchasing envelope machine exceeds