Curtiss Coffee Company is considering purchasing a machine that will allow them to make

decaffeinated coffee. The machine will cost $$24,000,000$ and will have to be paid for at the time

of purchase. If the machine is purchased, then annual sales of decaffeinated coffee will be

$$6,000,000$ in the first year and the annual sales will increase by $$3,000,000$ each year. The

annual cash operating expenses will be $$3,000,000$ in the first year and will increase by

$$1,000,000$ each year. The machine will last for $5$ years. Ignore income taxes. Curtiss Coffee

Company has a $15\%$ required rate of return.

Requirements: Complete each requirement on a separate worksheet. Each requirement uses the

information in the above paragraph and is independent of the other requirements.

Create a timeline of the cash flows. Calculate the net present value and the internal rate of

return.

a$.$ At the end of $5$ years, the machine will be disposed of at a cost of $$3,000,000.$

b$.$ Should Curtiss Coffee buy the machine?

Create a timeline of the cash flows. Calculate the net present value of the machine.

a$.$ The machine will require maintenance at the end of year $3.$ The cash cost of the

maintenance will be $$6,000,000.$

b$.$ At the end of $5$ years, the machine will be disposed of at zero cost.

c$.$ Should Curtiss Coffee buy the machine?

Create a timeline of the cash flows. Calculate the modified internal rate of return.

a$.$ At the end of $5$ years, the machine will be sold for $$5,000,000.$

b$.$ The finance rate is $9\%.$

c$.$ The reinvestment rate is $12\%.$

d$.$ Should Curtiss Coffee buy the machine?