Canning Machine 2 Why would Jennifer say that? Jennifer would prefer to use the internal rate...
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Canning Machine 2 Why would Jennifer say that? Jennifer would prefer to use the internal rate of return, which is more accurate. This fails to factor in the time value of money. She is concerned with calculating the payback period over a much longer time frame. This does not value current money more than future money. Monster Beverage is considering purchasing a new canning machine. This machine costs $3,500,000 up front. Required return = 11.0% $1,000,000 Year Cash Flow 0 $-3,500,000 1 2 $1,200,000 Correct! 3 $1,300,000 4 $900,000 What is the value of Year 3 cash flow discounted to the present? 5 $1,000,000 Canning Machine 2 Why would Jennifer say that? Jennifer would prefer to use the internal rate of return, which is more accurate. This fails to factor in the time value of money. She is concerned with calculating the payback period over a much longer time frame. This does not value current money more than future money. Monster Beverage is considering purchasing a new canning machine. This machine costs $3,500,000 up front. Required return = 11.0% $1,000,000 Year Cash Flow 0 $-3,500,000 1 2 $1,200,000 Correct! 3 $1,300,000 4 $900,000 What is the value of Year 3 cash flow discounted to the present? 5 $1,000,000
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