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 $42,900 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,000 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
2. What discount factor should be used to compute the new machine’s
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 $16,575 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
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