Purchase Solution

Net Present Value and Internal Rate of Return Methods.

Not what you're looking for?

Ask Custom Question

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?

Purchase this Solution
Solution Summary

The solution explains the calculation of net present value and internal rate of return using step by step methods. It is attached in a Word document.

Solution Preview

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

Year Cash flow PV Factor Present value @ 10%
1 $21,000 0.909 $19,091
2 29,000 0.826 23,967
3 36,000 0.751 27,047
4 16,000 0.683 10,928
5 8,000 0.621 4,967
Present value of inflows $86,000
Initial Investment (cost) 66,000
NPV (net present value) $20,000

b. What is the internal rate of ...

Purchase this Solution
Free BrainMass Quizzes
Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

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.

Operations Management

This quiz tests a student's knowledge about Operations Management

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

View More Free Quizzes
Related BrainMass Solutions

  • Capital budgeting Practice True False Exam Questions

    597431 Capital budgeting Practice True False Exam Questions Net Present Value Practice True false questions 1. The three common discounted cash flow methods are net present value, internal rate of return, and payback. 2.

  • Finance: Multiple choice questions.

    1)payback and average accounting return 2)internal rate of return and payback 3)net present value and payback 4)net present value and average accounting return 5)internal rate of return and net present value The Green Fiddle is considering

  • Identify and explain various capital budgeting methods

    499390 Identify and explain various capital budgeting methods Define the various capital budgeting methods such as net present value (NPV), internal rate of return (IRR), et cetera, and explain how they differ from one another.

  • Net Present Value Analysis vs. Internal Rate of Return vs. Payback Period

    Capital Budgeting Methods The three most popular capital budgeting methods used by corporations are 1) net present value analysis, 2) payback period, and 3) internal rate of return.

  • Important administrative considerations

    How does the modified internal rate of return include concepts from both the traditional internal rate of return and the net present value methods?

  • Net present value and internal rate of return methods

    217742 Net present value and internal rate of return methods Company want to buy a machine for 66,000.

  • Finance: Net present value,payback and IRR

    The solution is clear and concise with explanatory calculations. Thank you. The solution deals with issues in finance: Internal rate of return, Net present value and payback period calculations.

  • Computing NPV and IRR and Comparing Them

    Compute the net present value of each project. Which project should be adopted based on the net present value approach? B. Compute the approximate internal rate of return of each project.

  • Screening Capital Projects

    Cash payback method and average rate of return method b. Average rate of return method and net present value method c. Net present value method and cash payback method d. Internal rate of return and net present value methods. c.

View More Related Solutions