A) Management of Franklin Mints, a confectioner, is considering purchasing a new
ID: 2822315 • Letter: A
Question
A) Management of Franklin Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $312,500. They project that the cash flows from this investment will be $96,000 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round answer to 2 decimal places, e.g. 15.25.)
B) Crescent Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses an 18 percent discount rate for projects like this.
what is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)
Year Cash Flow 0 -$3,068,400 1 $800,810 2 $1,001,200 3 $1,085,000 4 $1,333,860 5 $1,540,400Explanation / Answer
1.
NPV=-312500+96000/1.14+96000/1.14^2+96000/1.14^3........96000/1.14^7=-312500+96000/0.14*(1-1/1.14^7)=99177.265
2.
NPV=-3068400+800810/1.18+1001200/1.18^2+1085000/1.18^3+1333860/1.18^4+1540400/1.18^5=350976.48
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