Question

Problem 20-43 (similar to) Question Help Frosted Cupcake Company is considering expanding by buying a new (additional) machine that costs $37,000, has zero terminal disposal value, and has a 10-year useful life. It expects the annual increase in cash revenues from the expansion to be $23,500 per year. It expects additional annual cash costs to be $15,300 per year. Its cost of capital is 4%. Ignore taxes. (Click the icon to view the present value of $1 factors.) (Click the icon to view the present value annuity of $1 factors.) Required Requirement 1. Calculate the NPV and IRR for this investment. First calculate the NPV of this investment. (Use factors rounded to three decimal places, X.XXX. Round your final answer to the nearest whole dollar Use a minus sign or parentheses for a negative net present value.) The NPV is S X Required Enter your answer in the a Calculate the NPV and IRR for this investment. 1. Check Answer 10 parts remaining Assume the finance manager of Frosted Cupcake Company is not sure about the cash revenues and cost5 The revenues could be anvwhere from 2. xENE DELL

Answer 1

Part 1		Project
	Original Costs(a)	$37,000
	Annual Cash Revenues	$23,500
	Annual Cash Costs	$15,300
	Net Cash Inflows	$8,200
	PV factor of annuity at 4% for 10 years	8.111
	PV of Net Cash Inflows(b)	$66,510
	NPV(b-a)	$29,510
	IRR	17.89%
Part 2		High Point	Low Point
	Original Costs(a)	$37,000	$37,000
	Annual Cash Revenues	$24,910	$22,090
	Annual Cash Costs	$15,300	$15,300
	Net Cash Inflows	$9,610	$6,790
	PV factor of annuity at 4% for 10 years	8.111	8.111
	PV of Net Cash Inflows(b)	$77,947	$55,074
	NPV(b-a)	$40,947	$18,074
	IRR	22.58%	12.89%
Part 3		High Point	Low Point
	Original Costs(a)	$37,000	$37,000
	Annual Cash Revenues	$24,910	$22,090
	Annual Cash Costs	$15,606	$14,382
	Net Cash Inflows	$9,304	$7,708
	PV factor of annuity at 4% for 10 years	8.111	8.111
	PV of Net Cash Inflows(b)	$75,465	$62,520
	NPV(b-a)	$38,465	$25,520
	IRR	21.58%	16.18%
Part 4		Project
	Original Costs(a)	$37,000
	Annual Cash Revenues	$23,500
	Annual Cash Costs	$15,300
	Net Cash Inflows	$8,200
	PV factor of annuity at 6% for 10 years	7.361
	PV of Net Cash Inflows(b)	$60,360
	NPV(b-a)	$23,360
	IRR	17.89%