Pacific Green Company is considering buying a unique bar-coding machine to help them track their plant inventory. They evaluated the payback period and accounting rate of return and selected the project for further evaluation. Relevant information on the machine is repeated as follows:Acquisition cost = $48,000Expected salvage value = $0Expected annual cash inflow benefits = $13,000 per year for 5 yearsExpected useful life = 5 yearsRequired: Compute the net present value of the project assuming a discount rate of 16%. Use EXCEL to compute the internal rate of return. Advise PGC on the best course of action with respect to the investment.
What will be an ideal response?
NPV is negative
IRR is approximately 11% (and below GPC's hurdle rate)
Do not invest
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