Wendell’s Donut Shoppe is investigating the purchase of a new $39,600 donut-maki

ID: 2472026 • Letter: W

Question

Wendell’s Donut Shoppe is investigating the purchase of a new $39,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,400 per year. In addition, the new machine 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 $2.00 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

What would be the total annual cash inflows associated with the new machine for capital budgeting purposes?

Find the internal rate of return promised by the new machine to the nearest whole percent.

In addition to the data given previously, assume that the machine will have a $14,000 salvage value at the end of six years. Under these conditions, compute the internal rate of return to the nearest whole percent

What would be the total annual cash inflows associated with the new machine for capital budgeting purposes?

Find the internal rate of return promised by the new machine to the nearest whole percent.

Explanation / Answer

AMOUNT OF TOTAL CASH INLFOWS ASSOCIATED WITH NEW MACHINE WILL BE THE COST SAVING OF THE PART TIME HELP NEEDED AND THE CONTRBUTION MARGIN OF EXTRA SALES OF 2500 DOZEN

= ($5400) + (2500*$2) = $10400.

AS EXHIBIT 13B1 AND B2 IS NOT PROVIDED BY STUDENT THE FURTHER SOLUTION CANT BE DONE

STUDENTS ARE REQUESTED TO PROVIDE FULL DETAIL AGAIN

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Wendell’s Donut Shoppe is investigating the purchase of a new $39,600 donut-maki

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Wendell’s Donut Shoppe is investigating the purchase of a new $39,600 donut-maki

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