Answer all parts of the econ problem ## 7.36 OverviewRecent technology has led to the development of a computerized vending machine capable of grinding coffee beans and brewing fresh coffee on demand. This machine offers advanced functions, including the ability to handle $5 and $10 bill changes, track item age, and prioritize older stock to minimize spoilage. With a unit price of $4,500, Easy Snack has projected cash flows (in millions of dollars) over the machine’s six-year lifespan, outlined below in Table P7.36.### Table P7.36: Cash Flow Projections| n | Net Cash Flow ||----|----------------|| 0 | −$30 || 1 | 9 || 2 | 18 || 3 | 20 || 4 | 18 || 5 | 10 || 6 | 5 |### Analysis Questionsa. Based on the IRR criterion, if the firm’s Minimum Attractive Rate of Return (MARR) is 18%, should the product be marketed?b. If the required investment remains unchanged, but future cash flows increase by 10% from original estimates, what is the expected increase in IRR?c. If the required investment rises from $30 million to $35 million, but projected cash flows decrease by 10% from original estimates, what is the expected decrease in IRR?

The internal rate of return or IRR is a metric utilized in financial and economic analysis to…

36 Recent technology has made possible a computerized vending machine that can grind coffee beans and brew fresh offee on demand. The computer also makes possible such complicated functions as changing $5 and $10 bills, acking the age of an item, and moving the oldest stock to the front of the line, thus cutting down on spoilage. With a rice tag of $4,500 for each unit, Easy Snack has estimated the cash flows in millions of dollars over the product's six- ear useful life, including the initial investment, as given in Table P7.36 LD. able P7.36 n 0 1 2 3 4 5 6 Net Cash Flow - $30 9 18 20 18 10 5 a. On the basis of the IRR criterion, if the firm's MARR is 18%, is this product worth marketing? b. If the required investment remains unchanged, but the future cash flows are expected to be 10% higher than the original estimates, how much of an increase in IRR do you expect? c. If the required investment has increased from $30 million to $35 million, but the expected future cash flows are

36 Recent technology has made possible a computerized vending machine that can grind coffee beans and brew fresh offee on demand. The computer also makes possible such complicated functions as changing $5 and $10 bills, acking the age of an item, and moving the oldest stock to the front of the line, thus cutting down on spoilage. With a rice tag of $4,500 for each unit, Easy Snack has estimated the cash flows in millions of dollars over the product's six- ear useful life, including the initial investment, as given in Table P7.36 LD. able P7.36 n 0 1 2 3 4 5 6 Net Cash Flow - $30 9 18 20 18 10 5 a. On the basis of the IRR criterion, if the firm's MARR is 18%, is this product worth marketing? b. If the required investment remains unchanged, but the future cash flows are expected to be 10% higher than the original estimates, how much of an increase in IRR do you expect? c. If the required investment has increased from $30 million to $35 million, but the expected future cash flows are

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Question

Answer all parts of the econ problem

## 7.36 Overview

Recent technology has led to the development of a computerized vending machine capable of grinding coffee beans and brewing fresh coffee on demand. This machine offers advanced functions, including the ability to handle $5 and $10 bill changes, track item age, and prioritize older stock to minimize spoilage. With a unit price of $4,500, Easy Snack has projected cash flows (in millions of dollars) over the machine’s six-year lifespan, outlined below in Table P7.36.

### Table P7.36: Cash Flow Projections

| n | Net Cash Flow |
|----|----------------|
| 0 | −$30 |
| 1 | 9 |
| 2 | 18 |
| 3 | 20 |
| 4 | 18 |
| 5 | 10 |
| 6 | 5 |

### Analysis Questions

a. Based on the IRR criterion, if the firm’s Minimum Attractive Rate of Return (MARR) is 18%, should the product be marketed?

b. If the required investment remains unchanged, but future cash flows increase by 10% from original estimates, what is the expected increase in IRR?

c. If the required investment rises from $30 million to $35 million, but projected cash flows decrease by 10% from original estimates, what is the expected decrease in IRR?

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