The pam american bottling co is considering the purchase of


The Pam American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The new cost of this machine is $45,000. The annual cash flows have the following projections.

                        Year                       Cash flow

                           1                         $15,000

                           2                         $20,000

                           3                         $25,000

                           4                         $10,000

                           5                         $5,000

a. If the cost of capital is 10%, what is the net present value of selecting a new machine?

b. What is the internal rate of return (IRR)?

c. Should the project be accepted? Why?

 

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Finance Basics: The pam american bottling co is considering the purchase of
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