Homework Help is Here – Start Your Trial Now!
Business
Finance
Calculate the annual rate of return for the new machine. (Round calculations in percentages to 2 decimal places, e.g. 15.25% and final answer to 1 decimal place, e.g. 15.2%)

Calculate the annual rate of return for the new machine. (Round calculations in percentages to 2 decimal places, e.g. 15.25% and final answer to 1 decimal place, e.g. 15.2%)

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
See similar textbooks
icon
Related questions
Question
Please answer completely and correctly with explanation computation formula steps answer in text no copy paste show explanation and computation clearly for numbers provide full working for all steps with explanation answer in text form
Blossom Company is considering the purchase of a new machine. The invoice price of the machine is $132,000, freight charges are estimated to be $3,200, and installation costs are expected to be $5,400. The salvage value of the new equipment is expected to be zero after a useful life of 4 years. Existing equipment could be retained and used for an additional 4 years if the company does not purchase the new machine. At that time, the equipment's salvage value would be zero. If the company purchases the new machine now, it would have to scrap the existing machine. Blossom's accountant, Kenneth Garcia, has accumulated the following data regarding annual sales and expenses with and without the new machine: 1. Without the new machine, Blossom can sell 10,800 units of product annually at a per-unit selling price of $100. With the new machine, the number of units produced and sold would increase by 25%, and the selling price would remain the same. 2. The new machine is faster than the old machine, and it is more efficient in its use of materials. With the old machine, the gross profit rate is 28.50% of sales, whereas the rate will be 30% of sales with the new machine. 3. Annual selling expenses are $173,000 with the current equipment. Because the new equipment would produce a greater number of units to be sold, annual selling expenses are expected to increase by 10% if it is purchased. 4. Annual administrative expenses are expected to be $108,000 with the old machine, and $121,000 with the new machine. 5. The current book value of the existing machine is $43,000. Blossom uses straight-line depreciation. 6. Blossom management has a required rate of return of 15% on its investments and a payback period of no more than 3 years. (a) Calculate the annual rate of return for the new machine. (Round calculations in percentages to 2 decimal places, e.g. 15.25% and final answer to 1 decimal place, e.g. 15.2%) Annual rate of return
Transcribed Image Text:Blossom Company is considering the purchase of a new machine. The invoice price of the machine is $132,000, freight charges are estimated to be $3,200, and installation costs are expected to be $5,400. The salvage value of the new equipment is expected to be zero after a useful life of 4 years. Existing equipment could be retained and used for an additional 4 years if the company does not purchase the new machine. At that time, the equipment's salvage value would be zero. If the company purchases the new machine now, it would have to scrap the existing machine. Blossom's accountant, Kenneth Garcia, has accumulated the following data regarding annual sales and expenses with and without the new machine: 1. Without the new machine, Blossom can sell 10,800 units of product annually at a per-unit selling price of $100. With the new machine, the number of units produced and sold would increase by 25%, and the selling price would remain the same. 2. The new machine is faster than the old machine, and it is more efficient in its use of materials. With the old machine, the gross profit rate is 28.50% of sales, whereas the rate will be 30% of sales with the new machine. 3. Annual selling expenses are $173,000 with the current equipment. Because the new equipment would produce a greater number of units to be sold, annual selling expenses are expected to increase by 10% if it is purchased. 4. Annual administrative expenses are expected to be $108,000 with the old machine, and $121,000 with the new machine. 5. The current book value of the existing machine is $43,000. Blossom uses straight-line depreciation. 6. Blossom management has a required rate of return of 15% on its investments and a payback period of no more than 3 years. (a) Calculate the annual rate of return for the new machine. (Round calculations in percentages to 2 decimal places, e.g. 15.25% and final answer to 1 decimal place, e.g. 15.2%) Annual rate of return
Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Present Value
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Fundamentals Of Financial Management, Concise Edi…
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS