Question

Big​ Steve's, makers of swizzle​ sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of ​$90,000 and will generate net cash inflows of $19,000 per year for 11 years.

a.  What is the​ project's NPV using a discount rate of 8 percent​? Should the project be​ accepted? Why or why​ not?

b.  What is the​ project's NPV using a discount rate of 16 ​percent? Should the project be​ accepted? Why or why​ not?

c.  What is this​ project's internal rate of​ return? Should the project be​ accepted? Why or why​ not?

2. East Coast Television is considering a project with an initial outlay of​ $X (you will have to determine this​ amount). It is expected that the project will produce a positive cash flow of $53,000 a year at the end of each year for the next 17

years. The appropriate discount rate for this project is 7 percent. If the project has an internal rate of return of

9 percent, what is the​ project's net present​ value?

Answer 1

1)