Each of the following scenarios is independent. All cash flows are after-tax cash flows. The present value
Question:
Each of the following scenarios is independent. All cash flows are after-tax cash flows.
The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.
Required:
1. Patz Corporation is considering the purchase of a computer-aided manufacturing system. The cash benefits will be $800,000 per year. The system costs $4,000,000 and will last eight years. Compute the NPV assuming a discount rate of 10 percent.
$
Should the company buy a new system?
- Select your answer -YesNoItem 2
2. Sterling Wetzel has just invested $223,500 in a restaurant specializing in German food. He expects to receive $33,308 per year for the next eight years. His cost of capital is 7.30 percent. Compute the internal rate of return. Enter your answer as a whole percentage value (for example, 16% should be entered as "16" in the answer box).
%
Did Sterling make a good decision?
Cornerstones of Cost Management
ISBN: 978-1285751788
3rd edition
Authors: Don R. Hansen, Maryanne M. Mowen