Recent technology has made possible a computerized vending machine that can grind coffee beans and brew fresh coffee on demand. The computer also makes possible such complicated functions as changing $5 and $10 bills and tracking the age of an item and then moving the oldest stock to the front of the line, thus cutting down on spoilage. With a price tag of $4,500 for each unit, Easy Snack has estimated the cash flows in millions of dollars over the product’s six-year useful life, including the initial investment, as follows:
(a) If the firm’s MARR is 18%, is this product worth marketing according to the IRR criterion?
(b) If the required investment remains unchanged but the future cash flows are expected to be 10% higher than the original estimates, how much increase in IRR do you expect?
(c) If the required investment has increased from $20 million to $22 million but the expected future cash flows are projected to be 10% smaller than the original estimates, how much decrease in IRR do you expect?