Big Steves, makers of swizzle sticks.

Big Steve’s, makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $100,000 and will generate free cash inflows of $18,000 per year for 10 years. For each of the listed required rates of return, determine the project’s net present value.

1. The required rate of return is 10 percent.

2. The required rate of return is 15 percent.

3. Would the project be accepted under part (a) or (b)?

4. What is this project’s internal rate of return?

TUTORIAL PREVIEW

Year	Cash flows	PV@10%	PV@15%
0	$      -100,000.00	$    -100,000.00	$          -100,000.00
1	$          18,000.00	$        16,363.64	$              15,652.17
2	$          18,000.00	$        14,876.03	$              13,610.59

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