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Safari File Edit View History Bookmarks Develop Window Help ) 79%)1. Sun 1:10 PM Q ·E Paylocity Capsim Portal Home AccountingMasterTM LEARNSMART Netflix YouTube Pinterest Blackboard Facebook Dalton and Hannah by Jud Davis Connect Etsy :: Your place to buy and sell all things g question | Chegg.com cial Connect Chapter 13 6 Savod Help Save & Exit Submit 10 Check my work 4 Wendell's Donut Shoppe is investigating the purchase of a new $48,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,700 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 3.33 points Click here to view Exhibit 138-1 and Exhibit 138-2, to determine the appropriate discount factor(s) using tables. rnship eBook Required 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? 2. What discount factor should be used to compute the new machine's internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine's internal rate of return to the nearest whole percent? 4. In addition to the data given previously, assume that the machine will have a $15,685 salvage value at the end of six years. Under these conditions, what is the internal rate of return? (Round your final answer to nearest whole percentage.) Hint Print References 1. Annual cash inflows 2. Discount factor 3· Internal rate of return 4. Internal rate of return 10,200 ent Ideas Graw Hill

Explanation / Answer

1
Annual cash inflows=6800+2*17=10200
2
Discount factor = Investment required/Net annual cash inflow=48300/10200=4.735294
3
IRR:
-48300+10200/(1+IRR)+10200/(1+IRR)^2+10200/(1+IRR)^3+10200/(1+IRR)^4+10200/(1+IRR)^5+10200/(1+IRR)^6=0

We see in the table, in 6 year line of PVOFA table, we get IRR=7.21%
4
-48300+10200/(1+IRR)+10200/(1+IRR)^2+10200/(1+IRR)^3+10200/(1+IRR)^4+10200/(1+IRR)^5+10200/(1+IRR)^6+15685/(1+IRR)^6=0
=>IRR=13.01%

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