Henrie\'s Drapery Service is investigating the purchase of a new machine for cle

Question

Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $151,640, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $40,000 per year. The machine would have a five-year useful life and no salvage value ond Eahuat532 to dt Click here to view Exhibit 13B-1 and Exhibit 138-2. to determine the appropriate discount factor(s) using table Required 1. What is the machine's internal rate of return? (Round your answer to whole decimal place ie. 0.123 should be considered as 12%.) 2. Using a discount rate of 10%, 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 $35,030 per year. Under these conditions, what is the internal rate of return? (Round your answer to whole decimal place i.e. 0.123 should be considered as 12%.) detourenee 1. Internal rate of return 2. Net present value 3. Internal rate of return

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount 1) Cost of machine            151,640.00 Increase in cash flows               40,000.00 PVF for 5 Years = 151,640/40,000                     3.7910 Looking at Exhibit 13B-2, PV of annuity is 3.791 at 10% in the 5th year Thus IRR is 10% 2) Since IRR is 10 % and discount rate is also 10% , it means NPV at 10% is Nil since at IRR PVCI = PVCO Net Cash Inflows               40,000.00 PVF for 5 Years                       3.791 PV of net cash inflows            151,640.00 PV of net cash outflows            151,640.00 NPV = 151,640 - 151,640                              -   3) Cost of machine            151,640.00 Increase in cash flows               35,030.00 PVF for 5 Years = 151,640/35030                       4.329 Looking at Exhibit 13B-2, PV of annuity is 4.329 at 5% in the 5th year IRR = 5%

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