Question: Big Steve's, maker of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $105,000 and will generate net cash inflows of $19,000 per year for 8 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 17 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?

Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 10PA: The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000,...
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Question:
Big Steve's, maker of swizzle sticks, is considering the purchase of a new plastic stamping machine. This
investment requires an initial outlay of $105,000 and will generate net cash inflows of $19,000 per year for
8 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 17 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?
Transcribed Image Text:Question: Big Steve's, maker of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $105,000 and will generate net cash inflows of $19,000 per year for 8 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 17 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?
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