The Green Goddess Salad Oil Company is considering the purchase of a new machine

Question

The Green Goddess Salad Oil Company is considering the purchase of a new machine that would increase the speed of manufacturing tires and save money. The net cost of the new machine is $58,000. The annual cash flows have the following projections. (Use a Financial calculator to arrive at the answers.)

  

If the cost of capital is 12 percent, what is the net present value? (Round the final answer to the nearest whole dollar.)

  

What is the internal rate of return? (Round the final answer to 2 decimal places.)

PLEASE DOUBLE CHECK YOUR ANSWERS USING A FINNACIAL CALCULATOR. NUMBERS IN PART A ARE CORRECT BUT PART B IS INCORRECT.

The Green Goddess Salad Oil Company is considering the purchase of a new machine that would increase the speed of manufacturing tires and save money. The net cost of the new machine is $58,000. The annual cash flows have the following projections. (Use a Financial calculator to arrive at the answers.)

Explanation / Answer

Hi there,

Ans A)

NPV

Total NPV = 65812.16

Net NPV = 65812.16 - 58000 = 7812.158

Ans B)

For Calculating IRR, NPV should be zero

58000 = 18000/(1+r)^1 + 20000/(1+r)^2 + 14000/(1+r)^3 + 25000/(1+r)^4 + 14000/(1+r)^5

solving for "r" we get,

r = 17.349%

Year Cash Flow/ Discounting Factor

NPV

1 18000/1.12 16071.43 2 20000/1.12^2 15943.88 3 14000/1.12^3 9964.923 4 25000/1.12^4 15887.95 5 14000/1.12^5 7943.976

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