CFIN6
Chapter 10 Spreadsheet Problem
Project Cash Flows and Risk
Use the computerized model in File C10 to work this problem.
Golden State Bakers, Inc. (GSB) has an opportunity to invest in a new bread-making machine. GSB
needs more productive capacity, so the new machine will not replace an existing machine. The new
machine is priced at $260,000 and will require modifications costing $15,000. It has an expected useful
life of 10 years, will be depreciated using the MACRS method over its 5-year class life, and has an
a. What is the NPV of this expansion project? Should GSB purchase the new machine?
b. Suppose GSB’s required rate of return is 12 percent rather than 10 percent. Should the new machine
be purchased in this case?
c. Should GSB purchase the new machine if it is expected to be used for only five years and then sold
for $31,250? (Note that the model is set up to handle a five-year life; you need enter only the new