The following information applies to me questions displayed below.] Wanders Donu
ID: 2745159 • Letter: T
Question
The following information applies to me questions displayed below.] Wanders Donut Shoppe is investigating me purchase or a new $18.600 donut-making machine. The new machine woo job permit the company to reduce the amount of part-time help needed. at a cost savings of $3.000 per year in addition me new machine would allow the company to produce one new sty of cobnut resting in the sale of 1000 dozen more donuts each year. The company realizes a contribution margin of $1.20 per cozen counts sold. The new machine would have a six-year use full time. (ignore income taxes.) What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? (Omit the "$" sign in your response.) Total annual cash inflows $ Find the internal role of return promised by the new machine. (Round your answer to two decimal places Omit the sign in your response.) Internal role of return % In addition to the data given previously, assume that the machine will have a $4, 125 salvage value at the of six years. Under these conditions. compute the internal rate of return. (Round your answer to two decimal places. Omit the "%" sign in your response.) Internal role of return %Explanation / Answer
Total annual cash inflows = Cost Savings per year + Contribution earned on new product
= 3800+(1000*1.20)
= 3800+1200 i.e 5000 per year
Internal rate of return
IRR Having salvage value at the end of 6 years
Particulars Year Cash Inflows PVF @ 10% PV PVF @ 18% PV Initial Cash Outflow 0 (18,600.00) 1.00 (18,600.00) 1.00 (18,600.00) Cash Inflows 1 5,000.00 0.91 4,545.45 0.85 4,237.29 Cash Inflows 2 5,000.00 0.83 4,132.23 0.72 3,590.92 Cash Inflows 3 5,000.00 0.75 3,756.57 0.61 3,043.15 Cash Inflows 4 5,000.00 0.68 3,415.07 0.52 2,578.94 Cash Inflows 5 5,000.00 0.62 3,104.61 0.44 2,185.55 Cash Inflows 6 5,000.00 0.56 2,822.37 0.37 1,852.16 Net Present Value 3,176.30 (1,111.99) IRR = 10%+5.93% i.e 15.93%Related Questions
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