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Safari File Edit View History BookmarksWindow Help newconnect.mheducation.com D2L Economics Book Apple Philosophy Link Sports and Society connect UA Student Center Portal Marketing St. System SONA Business in Grades 11953 ACC212 Connect How can a market Chapter 13 Homework Assignment 6 3 Exercise 13-3 Internal Rate of Return [LO13-3) 166 company to reduce the amount of part time help reeded, at a cost savings of $5,800 per yeat In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,000 dozen more donuts each year The compary ealzes a contribution margin of $2.00 per dozen donuts sold. The new machine would have a six-year useful ife. to view Exhibit 138-1 and Exhibit 138-2, to determine the appropriate discount factors) using tables Required 1 What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2·What dscon tactor should be used to compute the new machie's interna rate ofreturn? paind your answeri to 3 decimal places.) 3. What is the new machine's internal rate of reurn? (Round 4In addtion tothe data gven previously' assure that the machine wlhave a S 575 savage voue at the end of * yers under these conditions, what is the internal rate of return? (Round your final answer to nearest whole percentage) your final answer to nearest whole percentage. cash infows Reference inks

Explanation / Answer

Amount of Investment      A 42900 Annual Cash flows      B 9800 A/B 4.377551 Present Value factor of 4.377551 for six year lies between 9% and 10% in PV Annuity Table Requirment 1 We have used the discount factor of 9% and 10% Requirement 2 By interpolating we get Internal rate of return =9%   + (4.4859-4.3775)/(4.4859-4.3553) =9%   + 0.830015      = 9.83% Alternatively we can find Internal rate of return by excel formula Year Cash flow 0 -42900 1 9800 2 9800 =IRR(C12:C18,9) 3 9800 9.83% 4 9800 5 9800 6 9800 Requirment 3 16% as calculated below Year Cash flow 0 -42900 1 9800 2 9800 3 9800 4 9800 5 9800 6 26375 =9800+16575 75375 =IRR(C16:C22, 9.8) 16%

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