(Net present value calculation)
BigSteve's, makers of swizzlesticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $110,000 and will generate net cash inflows of $20000 per year for 9 years.
a. What is the project's NPV using a discount rate of 7 %? Should the project be accepted? Why or why not?
b. What is theproject's NPV using a discount rate of 16%? Should the project be accepted? Why or why not?
c. What is this project's internal rate of return? Should the project be accepted? Why or why not?
A. If the discount rate is 7% then theproject's NPV is______ (Round to the nearestdollar.) The project should be should /should not____ be accepted because the NPV is positive./ negative and therefore adds/doesnt add value to the firm. (Select from thedrop-down menus.)
b. If the discount rate is ____% then theproject's NPV is (Round to the nearestdollar.) The project should not be should not be should be accepted because the NPV is negative negative positive and therefore does not add does not add adds value to the firm. (Select from thedrop-down menus.)
c. Thisproject's internal rate of return is ___(Round to two decimalplaces.)
If theproject's required discount rate is 7%, then the project should be should not be should be accepted, because the IRR is lower than lower/higher than the required discount rate
If theproject's required discount rate is 16%, then the project should /should not be accepted, because the IRR is higher /lower than the required discount rate.