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 $60,000. 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.

Year	Cash Flow
1	$	20,000
2		25,000
3		26,000
4		30,000
5		15,000

a. If the cost of capital is 10 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.)

	Net present value

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

Internal Rate of Return

%

Answer 1

Solution: Year b PV factor at 10% PV factor working la 1.00000 1/(1+0.10^0 0.90909 1/(1+0.10)^1 2 0.82645 1/(1+0.10)^2 3 0.75131 1/(1+0.10)^3 4 0.68301 1/(1+0.10^4 0.62092 1/(1+0.10)^5 cash flow PV c =a*b -60000 20000 25000 26000 30000 15000 NPV -60000.00 18181.82 20661.16 19534.18 20490.40 9313.82 28181.38 Year وحماس با ما IRR by trial and error method cash flow Discount factor at 30% PV at 30% Discount factor at 28% PV at 28% Discount factor at 27% PV at 27% c=a*b e=a*d d e=a*d -60000.00 1.00000-60000.00 1.00000-60000.00 1.00000-60000.00 1 20000.00 0.7692315384.62 0.7812515625.00 0.7874015748.03 21 25000.00 0.59172 14792.90 0.61035 15258.79 0.62000 15500.03 26000.00 0.4551711834.32 0.4768412397.77 0.48819 12692.94 30000.00 0.3501310503.83 0.37253 11175.87 0.3844011532.05 15000.00 0.26933 4039.94 0.29104 4365.57 0.30268 4540.18 NPV -3444.40 NPV -1177.00 NPV 13.22 By interpolation IRR= 28-(1177/(1177+13.22)) 27.01%