Better Butterscotch Company wants to expand production. They are considering an investment in a new candy machine that costs $37,908 and would result in income of $10,000 per year for 5 years. Better Butterscotch's cost of capital is 8%. Ignore income taxes.
It is recommended that you use the Present Value Tables on Pages A6 - A9 in your textbook.
Compute the project's NPV at 8%, 10% and 12%
Suppose Better Butterscotch uses the NPV model. Would it accept the project? Why or why not?
Compute the project's IRR
Suppose Better Butterscotch uses the IRR model. Would it accept the project? Why or why not?