3 Homework Exercise 13-15 Internal Rate of Return and Net Present Value [L013-2,
ID: 2799488 • Letter: 3
Question
3 Homework Exercise 13-15 Internal Rate of Return and Net Present Value [L013-2, L013-3 Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $102,990, including freight and installation, Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $30.000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table Required what is the machine's internal rate of return? eRound your answer to whole decimal place Le·0.123 should be considered as 12%, 2. Using a discount rate of 14%, what is the machine's net present value? Interpret your results. 3. Suppose the new machine would increase the company's annual cash Inflows, net of expenses, by only $26.475 per year. Under these conditions, what is the internal rate of return? (Round your answer to whole decimal place Le·0.123 should be considered as 12%) Intenal rate of Net present value 3 Intemal rate of return Reference links Prev 6of6 Next >Explanation / Answer
Calculation of NPV Year Cash flows PVF@14% Present value of cash flows 1 30000 0.877 26310 2 30000 0.769 23070 3 30000 0.675 20250 4 30000 0.592 17760 5 30000 0.519 15570 102960 $ Initial Investment 102990 $ NPV -30 $ Since NP V is Negative Project not accepted Calculation of IRR Year Cash flows PVF@14% Present value of cash flows PVF @20% PV of cashflows 1 30000 0.877 26310 0.833 24990 2 30000 0.769 23070 0.694 20820 3 30000 0.675 20250 0.579 17370 4 30000 0.592 17760 0.482 14460 5 30000 0.519 15570 0.402 12060 102960 $ 89700 Present value of cashflows @14% 102960 Present value of cashflows @20% 89700 Change for 6% 13260 Present value of cashflows @14% 102960 Desired Value 102990 Desired change -30 0.000452 -0.01357 IRR 13.99% Calculation of IRR if cashflows are 26475$ Year Cash flows PVF@14% Present value of cash flows PVF @20% PV of cashflows 1 26475 0.877 23218.575 0.833 22053.675 2 26475 0.769 20359.275 0.694 18373.65 3 26475 0.675 17870.625 0.579 15329.025 4 26475 0.592 15673.2 0.482 12760.95 5 26475 0.519 13740.525 0.402 10642.95 90862.2 $ 79160.25 Present value of cashflows @14% 90862.2 Present value of cashflows @20% 79160.25 Change for 6% 11701.95 Present value of cashflows @14% 90862.2 Desired Value 102990 Desired change -12127.8 0.000513 -6.21835 IRR 7.78 %
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