Big Steve\'s, makers of swizzle sticks, is considering the purchase of a new pla
ID: 2651406 • Letter: B
Question
Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an intial outlay of $110000 and will generate net cash inflows of $17,000 per year for 11 years.
a. What is the project's NPV using a discount rate of 8%?__________(Round to the nearest dollar)
The project should/shouldn't be accept because the NPV is positive/negativeand therefore adds/does not add value to the firm.
b. What is the project's NPV using a discount rate of 14%? ____________(Round to the nearest dollar)
The project should/shouldn't be accept because the NPV is positive/negativeand therefore adds/does not add value to the firm.
c. What is this project's internal rate of return? ___________________
If the project's required discount rate is 8% then the project should/shouldn't be accepted because the IRR is lower/higher than the required discount rate
If the project's required discount rate is 14% then the project should/shouldn't be accepted because the IRR is lower/higher than the required discount rate
Explanation / Answer
Answer:a NPV=($17000*7.13896) - $110000
=$11362.392
The project should be accepted because NPV is positive and therefore adds value to the firm.
Answer:b NPV=($17000*5.4527330) - $110000
=-$17303.5386
The project should not be accepted because NPV is negative and therefore not adds value to the firm.
Answer:c IRR=10.33%
=110000/17000=6.40
so, IRR is 6.40
The project is accepted bec IRR is higher than cost of capital in case of discount rate is 8%.
The project should not be accepted because IRR is lower than cost of capital in case of discount rate is 14%
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