Question

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.12 million and create incremental cash flows of $834,391.00 each year for the next five years. The cost of capital is 9.35%. What is the net present value of the J-Mix 2000?

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.85 million and create incremental cash flows of $564,886.00 each year for the next five years. The cost of capital is 10.15%. What is the internal rate of return for the J-Mix 2000?

Answer 1

The student's question involves calculating the internal rate of return (IRR) for the J-Mix 2000 machine, considering its cost and the incremental annual cash flows it generates.

Step-by-step explanation:

The student is asking about the internal rate of return (IRR) for a capital investment decision involving the purchase of the J-Mix 2000 machine by Caspian Sea Drinks. To calculate IRR, we find the discount rate that makes the net present value (NPV) of the cash flows from the investment equal to zero.

The machine costs $1.85 million, and it generates incremental cash flows of $564,886.00 each year for five years. The goal is to determine the IRR that will balance out the initial outflow with the present value of the incoming cash flows, given the cost of capital is 10.15%.