# NPV at The Danforth Tire Company

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 12 percent, what is the net present value?

b. What is the internal rate of return?

c. Should the project be accepted? Why?

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#### Solution Preview

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 12 percent, what is the net present value?

b. What is the internal rate of ...

#### Solution Summary

The Net Present Value and Internal Rate of Return are calculated for the annual cash flows from the purchase of a new machine are calculated in an attached Excel file.