Question

#31 Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.38 million and create incremental cash flows of $877,269.00 each year for the next five years. The cost of capital is 11.18%. What is the net present value of the J-Mix 2000?

#32 Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.95 million and create incremental cash flows of $547,959.00 each year for the next five years. The cost of capital is 11.75%. What is the internal rate of return for the J-Mix 2000?

#33 Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.93 million and create incremental cash flows of $590,625.00 each year for the next five years. The cost of capital is 10.39%. What is the profitability index for the J-Mix 2000?

Answer 1

31
J-Mix 2000
Discount rate	0.1118
Year	0	1	2	3	4	5
Cash flow stream	-1380000	877269	877269	877269	877269	877269
Discounting factor	1	1.1118	1.236099	1.374295	1.5279413	1.698765
Discounted cash flows project	-1380000	789052.9	709707.6	638341.1	574150.97	516415.7
NPV = Sum of discounted cash flows
NPV J-Mix 2000 =	1847668.19
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

32
J-Mix 2000
IRR is the rate at which NPV =0
IRR	0.125218051
Year	0	1	2	3	4	5
Cash flow stream	-1950000	547959	547959	547959	547959	547959
Discounting factor	1	1.125218	1.266116	1.424656	1.6030489	1.80378
Discounted cash flows project	-1950000	486980.3	432787.5	384625.4	341823.02	303783.8
NPV = Sum of discounted cash flows
NPV J-Mix 2000 =	8.09669E-08
Where
Discounting factor =	(1 + IRR)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	12.52%

33
J-Mix 2000
Discount rate	0.1118
Year	0	1	2	3	4	5
Cash flow stream	-1930000	590625	590625	590625	590625	590625
Discounting factor	1	1.1118	1.236099	1.374295	1.5279413	1.698765
Discounted cash flows project	-1930000	531233.1	477813.6	429765.8	386549.53	347679
NPV = Sum of discounted cash flows
NPV J-Mix 2000 =	243041.02
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
PI= (NPV+initial inv.)/initial inv.
=(243041.02+1930000)/1930000
1.13