Big Steve\'s, makers of swizzle sticks, is considering the purchase of a new pla

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 $95,000 and will generate net cash inflows of $19,000 per year for 11 years.

a. What is the project's NPV using a discount rate of 7%? Should the project be accepted? Why or why not?

b. What is the project's NPV using a discount rate of 13%? Should the project be accepted? Why or why not?

c. What is this project's internal rate of return? Should the project be accepted? Why or why not?

Explanation / Answer

a Net present value(NPV) is 47,474.81 b Net present value(NPV) is 13,051.88 c Internal Rate of Return(IRR) is 16.15%.

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