Question
The following information applies to ALL parts of capital budgeting question The Pan American Bottling Co. is considering the purchase of a new machine that
The following information applies to ALL parts of capital budgeting question
The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $250,000 and is expected to have a useful life of 5 years, with a terminal disposal value of $10,000. Additional working capital of $25,000 is needed to keep the machine running efficiently, but this investment is fully recoverable at the end of the project. The company uses the straight-line depreciation method for its non-current assets, and its required rate of return is 10%. The annual cash flows have the following projections.
Year | Cash Flow |
1............ | $80,000 |
2............ | 100,000 |
3............ | 80,000 |
4............ | 60,000 |
5............ | 20,000 |
(c) Calculate the Internal rate of return (IRR) of the new machine, using the interpolation method
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started