Exercise 5 (Internal Rate of Return and Net Present Value)Honeylette's Cleaning Service is investigating the purchase of an ultrasoundmachine for cleaning window blinds. The machine would cost P136,700,including invoice cost, freight, and training of employees to operate it.Honeylette's has estimated that the new machine would increase thecompany's cash flows, net of expenses, by P25,000 per year. The machinewould have a 14-year useful life with no expected salvage value.Required:(Ignore income taxes.)1. Compute the machine's internal rate of return to the nearest whole percent.2. Compute the machine's net present value. Use a discount rate of 16%.Why do you have a zero net present value?3. Suppose that the new machine would increase the company's annual cashflows, net of expenses, by only P20,000 per year. Under these conditions,compute the internal rate of return to the nearest whole percent.

1) First determine the factor of the internal rate of return which may be calculated as: factor…

Answered: dow blinds. The machine would cost…

dow blinds. The machine would cost reight, and training of employees to c ed that the new machine would inc t of expenses, by P25,000 per year. The ul life with no expected salvage value.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 8P

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Question

Exercise 5 (Internal Rate of Return and Net Present Value)
Honeylette's Cleaning Service is investigating the purchase of an ultrasound
machine for cleaning window blinds. The machine would cost P136,700,
including invoice cost, freight, and training of employees to operate it.
Honeylette's has estimated that the new machine would increase the
company's cash flows, net of expenses, by P25,000 per year. The machine
would have a 14-year useful life with no expected salvage value.
Required:
(Ignore income taxes.)
1. Compute the machine's internal rate of return to the nearest whole percent.
2. Compute the machine's net present value. Use a discount rate of 16%.
Why do you have a zero net present value?
3. Suppose that the new machine would increase the company's annual cash
flows, net of expenses, by only P20,000 per year. Under these conditions,
compute the internal rate of return to the nearest whole percent.

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