Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $113,730, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $30,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 128-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using table. Required: 1. What is the machine's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 10%, what is the machine's net present value? Interpret your results. 3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $27,000 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value 3. Internal rate of return % %

Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
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Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost
$113,730, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of
expenses, by $30,000 per year. The machine would have a five-year useful life and no salvage value.
Click here to view Exhibit 128-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using table.
Required:
1. What is the machine's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be
considered as 12%.)
2. Using a discount rate of 10%, what is the machine's net present value? Interpret your results.
3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $27,000 per year. Under
these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be
considered as 12%.)
1. Internal rate of return
2. Net present value
3. Internal rate of return
%
%
Transcribed Image Text:Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $113,730, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $30,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 128-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using table. Required: 1. What is the machine's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 10%, what is the machine's net present value? Interpret your results. 3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $27,000 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value 3. Internal rate of return % %
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