Wendell’s Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,700 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 $1.50 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 14B-1 and Exhibit 14B-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? 2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answers 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 $16,280 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.)
Wendell’s Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,700 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 $1.50 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 14B-1 and Exhibit 14B-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? 2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answers 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 $16,280 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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Exercise 14-3 (Algo) Internal Rate of Return [LO14-3]
Wendell’s Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,700 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 $1.50 per dozen donuts sold. The new machine would have a six-year useful life.
Click here to view Exhibit 14B-1 and Exhibit 14B-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?
2. What discount factor should be used to compute the new machine’s internal rate of return? (Round your answers 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 $16,280 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.)
Transcribed Image Text:M Question 3 - Chapter 14 Homework Problems - Co...
EXHIBIT 14В-2
M https://ezto-cf-media.mheducation.com/Media/Con.
b Success Confirmation of Question Submi:
Present Value of an Annuity of $1 in Arrears;
((1+r))"
Periods
4%
5%
6%
7%
8%
9%
10%
12%
0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
1
11%
13%
14%
15%
16%
17%
18%
19%
20%
21%
22%
23%
0.826 0.820 0.813 0.806 0.800
1.509 1.492 1.474 1.457 1.440
24%
25%
1.886
1,859
1,833
1.808
1.783 1.759
1.736 1.713 1.690 1.668 1.647 | 1.626 1.605 1.585
3
2.775
2.723
2.673 2.624 2.577
1.566 1.547 1.528
2.531 | 2.487 | 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981
3.312 | 3.240 3.170| 3.102 3.037 2.974 2,914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362
3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 | 2.991 | 2.926 2.864 2.803 2.745 2.689
4
3.630 3.546
3.465
4.329 4.212 4.100
5.076 4.917
3.387
1.952
4.452
5.242
6.002 5.786 5.582| 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.6053.508 3.416 3.327 3.242 3.161
6.733 6.463
7.435 7.108
8.111
8.760 8.306 | 7.887 | 7.499
9.385 8.863
9.986 9.394 8.853
10.563 9.899 | 9.295 8.745 8.244
11.118 10.380 9.712
11.652 10.838 10.106 9.447
12.166 11.274 10.477 9.763
12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 | 7.250 6.840 | 6.467 6.128 5.818 | 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928
13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 | 7.366 6.938 | 6.550 | 6.198 | 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097
13.590 12.462 11.470 10.594 9.818
14,029 12.821 11.764 10.836 10.017 9.292 8.649 8.075 7.562 7.102 | 6.687 | 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963
14.451 13.163 12.042 11,061 10.201| 9.442 8.772 8.176 7.645 7.170 | 6.743 | 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 3.970
14.857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 7.718 7.230 6.792 | 6.399 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4.311 4.137 3.976
15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 | 6.434 6.073 5.746 5.451
15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 | 6.097 5.766 5.467 5.195 4.948 4.721 4.514 4.323 4.147 3.985
15.983 14.375 13.003 11.826 10.810 9.929 9.161 8.488 7.896 7.372 6.906 6.491 6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328 4.151
16.330 14.643 13.211 11.987 10.935 10.027 9.237 8.548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734 | 4.524 4.332 4.154 3.990
16.663 14.898 13.406 12.137 11.051 10.116 9.307 8.602 7.984 7.441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 3.992
16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 8.022 7.470 6.983 6.551 6.166 5.820 5.510 5.229 4.975 4.743 4.531
6.
4.767 4.623 4.486 4.355 4.231
4.111
3.998 3.889 | 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2,951
6,210
6.802
8
5.971
5.747
5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421
6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 | 4.607 | 4.451 | 4.303 4.163 4.031
6.710 | 6.418
6.515
3.905 3.786 3.673 3.566 3.463
6.145 5.889 5.650 5.426 5.216 5.019 | 4.833 4.659 4.494 4.339 4.192 4.054 3.923 3.799 3.682 3.571
7.139 6.805 6.495 6.207| 5.938 | 5.687| 5.453 5.234 5.029 4.836 4.656 4.486 4.327 4.177 4.035 3.902 3.776 3.656
6.814 6.492 6.194 5.918 5.660 5.421 | 5.197 4.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725
7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 | 4.910 | 4.715 | 4.533 4.362 4.203 4.053 3.912 3.780
10
7.722 7.360
7.024
11
8.384 7.943 7.536 7.161
8.358
12
13
7.904 7.487
14
7.786 7.367 6.982 | 6.628 6.302 | 6.002 5.724 5.468 5.229 5.008 4.802 4.611
4.432 4.265 4.108 3.962 3.824
| 3.859
7.824 7.379 6.974 6.604 6.265 5.954 5.668 | 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887
5.222 4.990 4.775 4.576 4.391| 4.219 4.059 3.910
15
9.108
8.559
8.061
7.606| 7.191
6.811 6.462 6.142 | 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153 4.001
16
8.851
8.313
17
9.122 8.544 8.022 | 7.549 7.120 6.729 | 6.373 6.047 5.749 5.475
18
19
3,942
20
9.129
8.514 7.963 7.469 7.025 6.623 | 6.259 5.929 5.628 5.353 5.101 4.870 4.657| 4.460 4.279 4.110 | 3.954
21
22
23
5.182 4.937 4.713 4.507 4.318 4.143 3.981
24
25
3.988
26
27
28
4.337 4.159 3.994
29
30
40
8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 | 4.979 4.746 4.534 4.339 4.160 3.995
8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999
17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694
19.793 17.159 | 15.046 13.332 11.925 10.757 9.779
Transcribed Image Text:EXHIBIT 14B-1
Success Confirmation of Question SubmisS
Present Value of $1;
1
((1 +r))"
Periods
4%
5%
6%
7%
10%
11%
8%
9%
12%
13%
14%
15%
16%
17%
18%
19%
25%
0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.806 0.800
20%
21%
22%
23%
24%
0.962 0.952 0.9430.935 0.926
0.925 0.907 0.890 0.873 0.857
1
2
0.842 0.826 0.812 0.797 0.783 0.7690.756 0.743 0.731 0.718 0.706 0.694 0.683 0.672 0.661 0.650 0.640
0.864 0.840 0.816 0.794
0.792 0.763 0.735
3
0.889
0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551
0.855 0.823
0.822 0.784 0.747 0.713 0.681
0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 | 0.319 | 0.303 | 0.289 | 0.275
0.537 0.524 0.512
0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.467 0.451 0.437 0.423 0.410
0.650 | 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.386 0.370 0.355 0.341 0.328
4
5
7
0.760
0.711
0.665 | 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0400 0.376 0.354 0.333 0.314 0.296 0.279 | 0.263 | 0.249 | 0.235 0.222 | 0.210
8
0.731
0.677 0.627
0.582
0.540 0.502 0.467
0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.218
0.204 0.191
0.179 0.168
0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.134
0.676 0.614 0.558 0.508 0.463 | 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.149 0.137 0.126 | 0.116 0.107
0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261
0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.102 0.092 0.083 0.076 0.069
9
10
11
0.237 0.215 0.195 | 0.178 | 0.162 | 0.148 | 0.135 0.123 0.112 | 0.103 | 0.094 | 0.086
12
0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.084 | 0.075
0.068 0.061 0.055
0.049 | 0.044
13
0.601
0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 | 0.205 0.181 0.160 0.141 | 0.125 | 0.111 0.099 0.088 0.078 0.069 0.062 0.055
0.555 0.481
0.534 0.458
0.513 0.436 0.371
0.494 0.416 0.350
14
0.084 0.074 0.065 0.057 0.051 | 0.045 0.040 0.035
0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 0.042 0.036 0.032 0.028
0.030 0.026 0.023
0.044 0.038 0.032 0.028 0.024 0.021 | 0.018
0.043 0.037 0.031 0.027 0.0230.020 0.017 0.014
0.014 | 0.012
15
0.417 |
0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095
16
0.317 | 0.270 0.231
0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051
0.277
17
0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.039 0.034
18
0.396 0.331
0.194
0.164
0.138
0.116 0.098
0.083 0.070 0.060 0.051
0.475
0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 | 0.061 0.051 0.043 0.037 0.031
0.439 0.359 0.294 0.242 0.199 0.164 0.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031
0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.101
0.406 0.326 0.262 0.211 0.170 0.138
0.390 0.310 0.247 0.197 0.158 0.126
0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074
19
0.232
20
0.026 0.022 0.019
0.016
0.026 0.022 0.018 0.015 0.013 0.011 0.009
0.009 0.007
0.007 0.006
0.006 | 0.005
21
0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.015 0.013 0.011
0.083
0.074 0.060 0.049 0.040 0.033 | 0.027 0.022 | 0.018 | 0.015 0.012 | 0.010 0.009
0.066 0.053 0.043 0.035 0.028 | 0.023 0.019 0.015 0.013 0.010
0.059 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010 0.009 0.007 0.006 0.005
22
0.112 0.091
0.102 0.082
23
0.008
0.007
24
0.126 |
0.004
25
0.220 0.172 0.135 0.106 0.084 0.066 0.053 0.042 | 0.033 0.026 0.021 0.017 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003
0.047 0.037 0.029 | 0.023 0.018 0.014 0.011
26
0.361
0.281
0.009 0.007 0.006 0.005 0.004 0.003
0.002
27
0.347
0.268 0.207 0.161
0.098 0.076 0.060
0.196 0.150 0.116 0.090 0.069 0.054 0.042 0.033 0.026 | 0.020 | 0.016 0.012 0.010 0.008 0.006 0.005
0.037 0.029 0.022 0.017 0.014 0.011 0.008 0.006 0.005 0.004
0.004 0,003
0,003
0.003 | 0.003 0.002
0.002
0.002 0.002 0.002
0.002 | 0.001
0.002
28
0.333 0.255
0.243 0.185 0.141
0.174
0.142 0.097
0.107 0.082 0.063 0.048
0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.012 0.009 0.007 0.005 0.004
0.046 0.032 0.022 0.015
29
0.321
30
0.308
0.231
0.131
0.011 0.008 0.005 0.004 0.003 0.002 0.001 0,001 | 0.001 0.000 0.000 | 0.000 0.000 0.000
40
0.067
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 1 images
Knowledge Booster
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.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education