Question

The Canada 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:

Year                                                                                                       Cash Flow

1 .....................                                                                                  $23,000

2 .....................                                                                                  26,000

3 .....................                                                                                  29,000

4 .....................                                                                                  15,000

5 .....................                                                                                  8,000

a. If the cost of capital is 13 percent, what is the net present value of selecting a new machine?

b. What is the internal rate of return?

c. Should the project be accepted? Why?

Include financial calculator steps, including the keys pressed on the calculator to solve each step.

Answer 1

Please press the following keys on your financial calculator-

CF

2ND CE|C

CFo = -60,000 enter

down arrow

CO1 = 23,000 enter

Down arrow(2)

CO2 =26,000 enter

Down arrow (2)

CO3 = 29,000 enter

Down arrow (2)

CO4 = 15,000 enter

Down arrow (2)

CO5 = 8,000 enter

NPV

I = 13

Down arrow

CPT

a. NPV = $14,356.11118

IRR CPT

b. IRR = 23.76687163%

c. The project should be accepted as the NPV is positive and IRR > cost of capital.

Do let me know in the comment section in case of any doubt.