FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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 inflows
12. Internal rate of return
%
3. Internal rate of return
%
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Transcribed Image Text: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 inflows 12. Internal rate of return % 3. Internal rate of return %
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