Problem: The Danforth Tire Company is considering the purchase of a new machine that would increase the speed of manufacturing and save money. The net cost of this machine is $66,000. The annual cash flows have the following projections.
Year Cash Flow
1. . . . . . . . . $21,000
2. . . . . . . . . 29,000
3. . . . . . . . . 36,000
4. . . . . . . . . 16,000
5. . . . . . . . . 8,000
a. If the cost of capital is 10 percent, what is the net present value?
b. What is the internal rate of return?
c. Should the project be accepted? Why?