# Should the Pan American Bottling Company Purchase a New Machine?

Not what you're looking for?

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 attached projections.

Year Cash Flow

1 $15 000

2 20 000

3 25 000

4 10 000

5 5000

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?

##### Purchase this Solution

##### Solution Summary

This solution calculates both the Net Present Value (NPV) and the Internal Rate of Return (IRR) in order to decide whether or not the project being advised in this case should be accepted. This solution provides a step by step response, providing all required variables and calculations.

##### Solution Preview

a) Net Present Value:

Year Net Cash Flow

0 ($45,000)

1 $15,000

2 $20,000

3 $25,000

4 $10,000

5 $5,000

Cost of capital = Discount rate = 10%

Year Cash Flow Discount Factor @ Discounted Cash Flow = 10%

0 (45,000) 1 - 45,000 =-45000*1

1 15,000 ...

##### Purchase this Solution

##### Free BrainMass Quizzes

##### Learning Lean

This quiz will help you understand the basic concepts of Lean.

##### Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

##### Basics of corporate finance

These questions will test you on your knowledge of finance.

##### Lean your Process

This quiz will help you understand the basic concepts of Lean.

##### Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.