The Pan American Bottling Co. is considering the purchase of a new machine that would...
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Finance
The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $60,000. The annual cash flows have the following projections: Year Cash Flow 1 .................... $23,000 2 .................... 26,000 3 .................... 29,000 4 .................... 15,000 5 .................... 8,000 a. What is the modified internal rate of return? An approximation from Appendix B is adequate. (You do not need to interpolate.) b. Assume the traditional internal rate of return on the investment is 17.5 percent. Explain why your answer in part a would be lower.
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