Copa Corporation is considering the purchase of a new machine costing $150,000.
ID: 2574039 • Letter: C
Question
Copa Corporation is considering the purchase of a new machine costing $150,000. The machine would generate net cash inflows of $43,690 per year for 5 years. At the end of 5 years, the machine would have no salvage value. Copa’s cost of capital is 12 percent. Copa uses straight-line depreciation.
Using a spreadsheet or financial calculator, determine the internal rate of return for the investment.
The proposal's internal rate of return (rounded to the nearest percent) is
A.
12.993 percent.
B.
16.012 percent.
C.
13.998 percent.
D.
14.251 percent.
Copa Corporation is considering the purchase of a new machine costing $169,000. The machine would generate net cash inflows of $43,690 per year for 5 years. At the end of 5 years, the machine would have no salvage value. Copa’s cost of capital is 14 percent. Copa uses straight-line depreciation.
Using a spreadsheet or financial calculator, determine the net present value for the investment.
The proposal's net present value (rounded to the nearest dollar) is:
A.
$(19,009)
B.
$ 18,921
C.
$ 1,070
D.
$(49,450)
A.
12.993 percent.
B.
16.012 percent.
C.
13.998 percent.
D.
14.251 percent.
Explanation / Answer
Calculation of IRR using IRR function of Excel:
Answer: C 13.998%
IRR =IRR(K1:K6,12%) = 13.998% (rounded to nearest percent)
Answer: NPV = ($19009)
Calculation of Net Present Value:
Using Excel NPV function we get,
NPV = NPV(14%,K:K6) - 169000 = ($19009)
Row J K Number Year Cash flow 1 0 -150000 2 1 43690 3 2 43690 4 3 43690 5 4 43690 6 5 43690