Requlred: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 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 answer to the nearest whole percentage.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter11: Capital Budgeting And Risk
Section: Chapter Questions
Problem 13P
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Wendell's Donut Shoppe is investigating the purchase of a new $31,300 donut-making machine. The new machine would permit the
company to reduce the amount of part-time help needed, at a cost savings of $5.300 per year. In addition, the new machine would
allow the company to produce one new style of donut, resulting in the sale of 1.300 dozen more donuts each year. The company
realizes a contribution margin of $3.00 per dozen donuts sold. The new machine would have a six-year useful life.
Click here to view Exhibit 128-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables.
Requlred:
1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes?
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 answer to the nearest whole percentage.)
4. In addition to the data given previously, assume that the machine will have a $12.820 salvage value at the end of six years. Under
these conditions, what is the internal rate of return? (Hint: You may find it helpful to use the net present value approach; find the
discount rate that will cause the net present value to be closest to zero.) (Round your final answer to the nearest whole percentage.)
1.
Annual cash inflows
2.
Discount factor
3.
Internal rate of return
4.
Internal rate of return
Transcribed Image Text:Wendell's Donut Shoppe is investigating the purchase of a new $31,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5.300 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1.300 dozen more donuts each year. The company realizes a contribution margin of $3.00 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 128-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using tables. Requlred: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 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 answer to the nearest whole percentage.) 4. In addition to the data given previously, assume that the machine will have a $12.820 salvage value at the end of six years. Under these conditions, what is the internal rate of return? (Hint: You may find it helpful to use the net present value approach; find the discount rate that will cause the net present value to be closest to zero.) (Round your final answer to the nearest whole percentage.) 1. Annual cash inflows 2. Discount factor 3. Internal rate of return 4. Internal rate of return
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