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 $51,000. The annual cash flows have the following projections: Use Appendix B and Appendix D.
Year Cash flow 1 $ 15,600 2 20,600 3 25,600 4 10,600 5 5,600
(a) If the cost of capital is 10 percent, what is the net present value of selecting a new machine? (Round "PV Factor" to 3 decimal places. Round all dollar values to the nearest dollar amount. Omit the "$" sign in your response.)
Net present value $
(b) What is the internal rate of return? (Round "PV Factor" to 3 decimal places. Round all dollar values to the nearest dollar amount. Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Internal rate of return %
(c) Should the project be accepted? Yes No
| 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 $51,000. The annual cash flows have the following projections: Use Appendix B and Appendix D. |
| Year | Cash flow |
| 1 | $ 15,600 |
| 2 | 20,600 |
| 3 | 25,600 |
| 4 | 10,600 |
| 5 | 5,600 |
| (a) | If the cost of capital is 10 percent, what is the net present value of selecting a new machine? (Round "PV Factor" to 3 decimal places. Round all dollar values to the nearest dollar amount. Omit the "$" sign in your response.) |
| Net present value | $ |
| (b) | What is the internal rate of return? (Round "PV Factor" to 3 decimal places. Round all dollar values to the nearest dollar amount. Round your answer to 2 decimal places. Omit the "%" sign in your response.) |
| Internal rate of return | % |
| (c) | Should the project be accepted? | ||||
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Related questions
| Home Security Systems is analyzing the purchase of manufacturing equipment that will cost $92,000. The annual cash inflows for the next three years will be: |
| Year | Cash flow | |||
| 1 | $ | 41,000 | ||
| 2 | 39,000 | |||
| 3 | 34,000 | |||
| (a) | Determine the internal rate of return using interpolation. Use Appendix B and Appendix D. (Round "PV Factor" and intermediate to 3 decimal places. Round final answer to 2 decimal places. Omit the "%" sign in your response.) |
| Internal rate of return | % |
| (b) | With a cost of capital of 10 percent, should the machine be purchased? | ||||
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| Propulsion Labs will acquire new equipment that falls under the five-year MACRS category. The cost is $340,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years: |
| Use Table 12-9 and Appendix B. |
| Year 1 | $ | 121,000 |
| Year 2 | 140,000 | |
| Year 3 | 100,000 | |
| Year 4 | 60,000 | |
| Year 5 | 55,000 | |
| Year 6 | 32,000 | |
| The firm is in a 40 percent tax bracket and has a 12 percent cost of capital. |
| (a) | Calculate the net present value. (Negative amounts should be indicated by a minus sign. Round "PV Factor", "Percentage depreciation" to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.) |
| Net present value | $ |
| (b) | Under the net present value method, should Propulsion Labs purchase the equipment asset? | ||||
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