The Pan American Bottling Co. is considering the purchase of a new machine that

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 $36,000. The annual cash flows have the following projections: Use Appendix B and Appendix D.

If the cost of capital is 9 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.)

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.)

Explanation / Answer

NPV=-36000+14100/(1+r)+19100/(1+r)^2+24100/(1+r)^3+9100/(1+r)^4+4100/(1+r)^5
NPV @9%=-36000+14100/1.09+19100/1.09^2+24100/1.09^3+9100/1.09^4+4100/1.09^5=20732.88

IRR is the rate at which NPV=0
0=-36000+14100/(1+r)+19100/(1+r)^2+24100/(1+r)^3+9100/(1+r)^4+4100/(1+r)^5
=>r=32.23%
Hence, IRR=32.2328%

Yes, the project should be accepted as it is positive NPV project and IRR is more than the cost of capital of 9%

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