Pan bottling co is considering purchasing a new machine to increase the speed of
ID: 2723410 • Letter: P
Question
Pan bottling co is considering purchasing a new machine to increase the speed of bottling and save money. The net cost of the machine is $60,000. The annual cash flows have the following projections:
Year 1 cash flow $23,000
Year 2 cash flow $26,000
Year 3 cash flow $29,000
Year 4 cash flow $15,000
Year 5 cash flow $8,000
A. If the cost of capital is 13%, what is the net present value of selecting a new machine?
B. What is the internal rate of return? Please show work
C. Should the project be accepted and why?
Explanation / Answer
A.
NPV=-60000+23000/1.13^1+26000/1.13^2+29000/1.13^3+15000/1.13^4+8000/1.13^5=14356.11
IRR use excel
IRR= IRR(range of cash flow values)
= 23.77%
yes accept project as NPV is positive and IRR>WACC
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