NPV and IRR

The first two scenarios are independent. All cash flows are after-tax cash flows.

The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.

Required:

1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be $702,000 per year. The system costs $4,805,000 and will last eleven years. Compute the NPV assuming a discount rate of 8 percent. $fill in the blank 1

Should the company buy the new system?

YesNo

2. Amy Wetzel has just invested $307,500 in a restaurant specializing in German food. She expects to receive $37,911 per year for the next ten years. Her cost of capital is 3.60 percent. Compute the internal rate of return. Round your answers to whole percentage value (for example, 16% should be entered as "16" in the answer box). fill in the blank 3 %

Did Amy make a good decision?

YesNo

3. For each of the previous two requirements, choose the data analytic type that applies and explain why (descriptive, diagnostic, predictive, or prescriptive). Note: More than one analytic type might apply. See Exhibits 2.5 and 2.6, pp. 37, 40, for a brief review of data analytics.

Descriptive and DiagnosticDiagnostic and PredictivePredictive and PrescriptivePrescriptive and Descriptive