[The following information applies to the questions displayed below. Wendell\'s

Question

[The following information applies to the questions displayed below. Wendell's Donut Shoppe Is Investigating the purchase of a new $18,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $3,800 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 lfe. (Ignore Income taxes.) Solve this question using your financial calculator or Excel, NOT the tables in the chapter

Explanation / Answer

Cost saving = $3,800

Add: contribution 1.2*1,000 = $1,200

Total annual cash flow = $5,000

1. Annual cash flow

Cost saving = $3,800

Add: contribution 1.2*1,000 = $1,200

Total annual cash flow = $5,000

1. Using financial calculator 15.64%
2. 18.81% pa

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