ter 13 Homework 6 Saved Help Save &Exit; Submit Check my work Wendell\'s Donut S
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ter 13 Homework 6 Saved Help Save &Exit; Submit Check my work Wendell's Donut Shoppe is investigating the purchase of a new $34,500 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5.600 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,600 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. Click here to view Exhibit 138-1 and Exhibit 138-2, to determine the appropriate discount factorts) using tables. Book Hint Print rences 4. In addition to the data given previously, assume that the machine will have a $15,645 salvage value at the end of six years. Under 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? (Round your final answer to nearest whole percentage.) these conditions, what is the internal rate of return? (Round your final answer to nearest whole percentage.) 1. Annual cash inflows 2. Disoount factor 3. Intermal rate of return 4. Internal rate of return K Prex 2 of 4 Next>Explanation / Answer
Ans 1 Annual Cash inflows Savings $5,600 Add: Contribution saving (1600*2) 3200 Annual Cash inflows $8,800 Ans 2 Investment required Annual cash inflows Factor No. of year IRR 34500 8800 3.920455 6 13.70% ans 3 Discount Factor It is the factor at which NPV is $0 IRR is 13.7% Annual Cash inflows $8,800 PVIFA (13.7%,6) 3.920826694 PV of annual cash inflows $34,503 Less: Initial investment 34500 NPV $3 ans 4 IRR= 20% Annual Cash inflows $0 PVIFA (20%,6) 3.3255 PV of annual cash inflows $0 PV of salvage value (15645*.334898) $5,239 Total PV $5,239 Less: Initial investment 34500 NPV $4
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