The Pan American Bottling Co. is considering the purchase of a new machine that

Question

The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $72,000. The annual cash flows have the following projections. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

If the cost of capital is 14 percent, what is the net present value of selecting a new machine? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

discount Rate 14% Year 0 1 2 3 4 5 Cashflow -72000 30000 28000 27000 35000 21000 discount factor 1.14 1.30 1.48 1.69 1.93 PV -72000 26315.79 21545.09 18224.23 20722.81 10906.74 NPV 25714.66 IRR 12.63% PV = Cashflow/(1+r)^n where n = Time r = discount rate discount factor = 1/(1+r)^n for IRR 72000 = 30000/(1+r) +28000/(1+r)^2 +27000/(1+r)^3 +35000/(1+r)^4+21000/(1+r)^5 r = 12.63%

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