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Wendell’s Donut Shoppe is investigating the purchase of a new $18,703 donut making machine. The new machine would permit the company to reduce the amount of part time help needed, at a cost savings of $3,375 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,000 dozen more donuts each year. The company realizes a contribution margin of $1.20 per dozen donuts sold. The new machine would have a six year useful life. (Ignore by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c1″>income taxes.) by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c1″> |
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To determine the appropriate discount factor(s) using tables, click here to view Exhibit 13B 1 andExhibit 13B 2. Alternatively, if you calculate the discount factor(s) using a formula, round to three (3) decimal places before using by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c1″>the factor in the problem. by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c1″> |
rev: 12_14_2011
2. value:
2.00 points
| Requirement 1: |
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What would be the total annual cash inflows associated with the new machine for capital by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c1″>budgetingpurposes? (Omit the “$” sign in your response.) by Solid Savings” href=”http://ezto.mhecloud.mcgraw hill.com/#” class=”c1″> |
| Total annual cash inflows | $ |
rev: 12_06_2011 check my workeBook Link
3. value:
2.00 points
| Requirement 2: |
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Find the internal rate of return promised by the new machine. (Round your answer to 3 decimal places. Omit the “%” sign in your response.) |
| Internal rate of return | % |
rev: 12_06_2011 check my workeBook Link
4. value:
2.00 points
| Requirement 3: |
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In addition to the data given previously, assume that the machine will have a $7,294 salvage value at the end of six years. Under these conditions, compute the internal rate of return. (Hint: You may find it helpful to use the trial and error process; find the discount rate that will cause the net present value to be closest to zero.) (Round your answer to 2 decimal places. Omit the “%” sign in your response.) |
| Internal rate of return | % |