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Question - Evaluating projects with NPV & IRR
CBA Sports Inc. is considering testing a $18,000 vending machine at one of its facilities. The manager assigned to study the feasibility of this investment estimates that the operating cash flow will be $3,750 per year. The project is for 6 years and the equipment is expected to have a after-tax salvage value of $2,000 at the end of 6 years when the project is concluded.
1. Create a cash flow table
2. What is the IRR of this project? If the discount rate is 10%, should the company go ahead with the project based on IRR? Why?
3. If the discount rate is 9%, what is the NPV of the project? Should the company go ahead with the project based on NPV? Why?
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