Please do 8.23 using information from previous questions, answers for all questions are shown.

8.3 The XYZ Company is contemplating the purchase of a new milling machine. The purchase price of the new machine is $60 000 and its annual operating cost is $2 675.40. The machine has a life of seven years, and it is expected to generate $15 000 in revenues in each year of its life, What is the net present value of the investment in this machine if the interest rate is (a) 8% per year, (b) 10% per year, (c) 12% per year, compounded annually? Interpret your results. In years 1 through 7, the net annual cash flow is $15 000 - $2675.40 = $12 324.60 (a) NPV = - $60 000+ $12 324.60(P/A, 8%, 7) = -$60 000 + $12 324.60(0.19207)-' = $4167.23 (b) NPV = -$60 000+ $12 324.60(P/A, 10%, 7) = -$60 000+ $12 324.60(0.20541)-'= $0 NPV = -$60 000+ $12 324.60(P/A, 12%, 7) =-$60 000 + $12 234.60(0.21912)' = -$3754.11 When the interest rate is less than 10%, the present worth of the annual cash flows of $12 324.60 for 7 years is greater than the $60 000 investment; hence, the NPV is a positive number. When the interest rate is 10%, the present worth of the annual cash flows is just equal to the $60000 investment, and NPV = 0. When the interest rate is greater than 10%, the present worth of the annual cash flows is less than the investment, and the NPV is negative. Thus, when the interest rate is above 10%, it would not be economical to purchase the milling machine. 8.16 A different plant from the one described in Problem 8.13 can be built for an initial investment of $13 million and no supplemental investments. All other data are the same as in Problems 8.13 and 8.14. (a) Compute the net present value. (b) Is this plant an economically acceptable investment? Ans.(a) +$855 708.47; (b) yes 8.18 Compute the NPV of an investment with CF, = -$50 000 and CF; = +$12 000 (j = 1,...,6) if the annual interest rate, compounded annually, is (a) 8%, (b) 10%, (c) 12%, (d) 15%. (e) Interpret the results. Ans.(a) $5473.37; (b) $2262.53; (c) - $663.98; (d) --$4586.74. (e) The investment is not economically acceptable when the interest rate is 12% or greater, in which case the presentworth of the cash flows is less than the (present worth of the) investment. Compute the payback period for the investment of (a) Problem 8.3, (b) Problem 8.16, (c) Problem 8.18. Ans.(a) PBP = 11 years; (b) PBP = 8 years; (c) PBP = 4.17 years 8.23