Wendell's Donut Shoppe is investigating the purchase of an $42,800 donut-making machine with a six-year useful life. The new machine would reduce labor costs by $5,700 per year. In addition, it 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. Click here to view Exhibit 148-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables. Required: 1. What are the new machine's total annual cash inflows? 2. What discount factor should be used to compute the new machine's internal rate of return? Note: Round your answer to 3 decimal places. 3. What is the new machine's internal rate of return? Note: Round your final answer to the nearest whole percentage. 4. In addition to the data given previously, assume 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.) Note: 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 %
Wendell's Donut Shoppe is investigating the purchase of an $42,800 donut-making machine with a six-year useful life. The new machine would reduce labor costs by $5,700 per year. In addition, it 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. Click here to view Exhibit 148-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables. Required: 1. What are the new machine's total annual cash inflows? 2. What discount factor should be used to compute the new machine's internal rate of return? Note: Round your answer to 3 decimal places. 3. What is the new machine's internal rate of return? Note: Round your final answer to the nearest whole percentage. 4. In addition to the data given previously, assume 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.) Note: 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 %
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 10P: Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6...
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Transcribed Image Text:Wendell's Donut Shoppe is investigating the purchase of an $42,800 donut-making machine with a six-year useful life. The new
machine would reduce labor costs by $5,700 per year. In addition, it 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.
Click here to view Exhibit 148-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables.
Required:
1. What are the new machine's total annual cash inflows?
2. What discount factor should be used to compute the new machine's internal rate of return?
Note: Round your answer to 3 decimal places.
3. What is the new machine's internal rate of return?
Note: Round your final answer to the nearest whole percentage.
4. In addition to the data given previously, assume 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.)
Note: 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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