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Essay / Research Paper Abstract
A 6 page paper discussing a purchase decision facing CU Boxes Inc. and determining NPV of the purchase and cost of operation compared to the benefits the company can expect to gain from the purchase of a new machine used in production. The final page of the paper compares NPV, IRR and MIRR. Bibliography lists 5 sources.
Page Count:
6 pages (~225 words per page)
File: CC6_KSacctNPVirr.rtf
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Unformatted sample text from the term paper:
Boxes Inc. makes boxes for shoe manufacturers" and needs a new machine in the manufacturing process. Neither machine is expected to have any disposal value at the end of
its useful life of five years, though the present machine can be sold now for $30,000. Intuitively it appears that the company should purchase the new machine because it
will save $100,000 each year than it costs in each of its five years, but the company needs to base its purchase decision on better information than relying only an
intuitive assessment. Assessing Costs and Value The machine being considered has a life of five years and no disposal value. Its total
purchase is $1,000,000, which when discounted at a rate of 10 percent will cost the company a declining amount in each of the five years of its useful life.
Table 1 illustrates that the present value of the machines purchase price is $758,140 rather than $1,000,000. Using the new machine will save
the company $300,000 annually in each of the five years of the machines useful life. This amount also should be discounted to discover the true value to the company
over a five-year period. Table 2 demonstrates that the total annual savings at a discount factor of 10 percent is $1,137,210 rather than the $1.5 million ($300,000/year x 5
years = $1,500,000) it would seem to be. Table 1. NPV of Machine
Purchase Cash Flows Discount Rate Factor 10% Total Present Value At end of year # 0 1 2 3 4 5 Outgoing
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