Question

1.  Big​ Steve's, makers of swizzle​ sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of ​$95,000 and will generate net cash inflows of $19,000 per year for 9 years.

a.  What is the​ project's NPV using a discount rate of 8 percent​? Should the project be​ accepted? Why or why​ not?

b.  What is the​ project's NPV using a discount rate of 13 ​percent? Should the project be​ accepted? Why or why​ not?

c.  What is this​ project's internal rate of​ return? Should the project be​ accepted? Why or why​ not?

2. Carson Trucking is considering whether to expand its regional service center in​ Mohab, UT. The expansion requires the expenditure of ​$9,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to ​$2,000,000 per year for each of the next 6 years. In year 6 the firm will also get back a cash flow equal to the salvage value of the​ equipment, which is valued at ​$1.1million. ​ Thus, in year 6 the investment cash inflow totals

​$3,100,000. Calculate the​ project's NPV using a discount rate of 10 percent.

If the discount rate is 10 ​percent, then the​ project's NPV is:

Answer 1

1)