# 12-14 Pan American Bottling purchase of machine: NPV, IRR, accept the project?

12/14. 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 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 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?

© BrainMass Inc. brainmass.com June 3, 2020, 5:23 pm ad1c9bdddfhttps://brainmass.com/business/capital-budgeting/12-14-pan-american-bottling-purchase-of-machine-npv-irr-accept-the-project-24451

#### Solution Preview

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

We can use EXCEL command "NPV(10%, 15000,...,5000) to calculate the PV of all the cash flows(discounted at 10%):

Year CF

1 ...

#### Solution Summary

The calculations and explanations are more than adequate to explain the problems.