does this look right so far and how do I figure out question c? Big Steve\'s, ma

Question

does this look right so far and how do I figure out question c?

Big Steve's, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $90,000 and will generate net cash inflows of $16,000 per year for 8 years. What is the project's NPV using a discount rate of 8 percent? Should the project be accepted? Why or why not? What is the project's NPV using a discount rate of 13 percent? Should the project be accepted? Why or why not? What is this project's internal rate of return? Should the project be accepted? Why or why not? If the discount rate is 8 percent, then the project's NPV is $ 1946.22. (Round to the nearest dollar.) The project should be accepted because the NPV is positive and therefore adds value to the firm. (Select from the drop-down menus) If the discount rate is 13 percent, then the project's NPV is $ 13219.68. (Round to the nearest dollar.) The project should not be accepted because the NPV is negative and therefore does not add value to the firm. (Select from the drop-down menus.) This project's internal rate of return is (Round to two decimal places.) If the project's required discount rate is 8% then the project accepted, because the IRR is the project's required discount rate is 8%. then the project drop-down menus.) If the project's required discount rate is 13%, then the project accepted, because the IRR is the required discount rate (select from the drop-down menus.)

Explanation / Answer

Calculation of Net Present Value of the Project when discount rate is 8% Year Cash flows Discount Present Factor @ 8% Value 0 $       -90,000.00 1.0000 $     -90,000.00 1 - 8 $        16,000.00 5.7466 $      91,945.60 NPV $         1,945.60 a) If the discount rate is 8% then the Project NPV is $ 1,945.60 The Project should not be accepted because the NPV is Negative and therefore adds value to the firm Calculation of Net Present Value of the Project when discount rate is 13% Year Cash flows Discount Present Factor @ 13% Value 0 $       -90,000.00 1.0000 $     -90,000.00 1 - 8 $        16,000.00 4.7987 $      76,779.20 NPV $     -13,220.80 b) If the discount rate is 13% then the Project NPV is $ -13,220.80 The Project should not be accepted because the NPV is negative and therefore does not adds value to the firm c) Project's Internal rate of return is as follows: IRR = LOWER RATE + NPV AT LOWER RATE / NPV AT LOWER RATE - NVP AT HIGHER RATE * DIFFERENCE IN RATE = 8% + $ 1,945.60 / $ 1,945.60 - $ -13,220.80 * 5% = 8.64% Project Internal Rate of return is 8.64%

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