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 $45,000. The annual cash flows have the attached projections.
Year Cash Flow
1 $15 000
2 20 000
3 25 000
4 10 000
5 5000
a) If the cost of capital is 10 percent, what is the net present value of selecting a new machine?
b) What is the internal rate of return?
c) Should the project be accepted? Why?