Wendell's Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. Thenew machine would permit the company to reduce the amount of part-time help needed, at a costsavings of $3,800 per year. In addition, the new machine would allow the company to produce onenew style of donut, resulting in the sale of 1,000 dozen more donuts each year. The company realizes acontribution margin of $1.20 per dozen donuts sold. The new machine would have a six-year useful life.Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) usingtables.Required:1. What would be the total annual cash inflows associated with the new machine for capital budgetingpurposes? (Round your final answer to the nearest whole dollar amount.)2. What discount factor should be used to compute the new machine's internal rate of return? (Roundyour answers to 3 decimal places.)3. What is the new machine's internal rate of return? (Round your answer to the nearest wholepercentage, i.e. 0.123 should be considered as 12%.)4. In addition to the data given previously, assume that the machine will have a $9,125 salvage value atthe end of six years. Under these conditions, what is the internal rate of return? (Hint: You may find ithelpful to use the net present value approach; find the discount rate that will cause the net presentvalue to be closest to zero.) (Round your answer to the nearest whole percentage, i.e. 0.123 shouldbe considered as 12%.)1. Annual cash inflows2. Discount factor3. Internal rate of return4. Internal rate of return%%

An annual cash flow of positive indicates that a business has made more money than it has spent,…

Wendell's Donut Shoppe is investigating the purchase of a new $18,60 new machine would permit the company to reduce the amount of part- savings of $3,800 per year. In addition, the new machine would allow t new style of donut, resulting in the sale of 1,000 dozen more donuts ea contribution margin of $1.20 per dozen donuts sold. The new machine

Wendell's Donut Shoppe is investigating the purchase of a new $18,60 new machine would permit the company to reduce the amount of part- savings of $3,800 per year. In addition, the new machine would allow t new style of donut, resulting in the sale of 1,000 dozen more donuts ea contribution margin of $1.20 per dozen donuts sold. The new machine

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 4P

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Wendell’s Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $3,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,000 dozen more donuts each year. The company realizes a contribution margin of $1.20 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? (Round your final answer to the nearest whole dollar amount.) 2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answer to 3 decimal places.) 3. What is the new machine’s internal rate of return? (Round your final…
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Wendell's Donut Shoppe is investigating the purchase of a new $34,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,500 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.60 per dozen donuts sold. The new machine would have a six-year useful life.
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Wendell's Donut Shoppe is investigating the purchase of a new $37,700 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,600 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,500 dozen more donuts each year. The company realizes a contribution margin of $2.00 per dozen donuts sold. The new machine would have a six-year useful life. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What is the new machine's internal rate of return? Note: Round your final answer to the nearest whole percentage. 3. In addition to the data given previously, assume that the machine will have a $14,130 salvage value at the end of six years. Under these conditions, what is the internal rate of return? Note: Round your final answer to the nearest whole percentage. 1. Annual cash…
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