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 $137,320, including freight and installation. Henrie's has estimated that 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. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table. Required 1. Compute the machine's internal rate of return to the nearest whole percent. Internal Rate of Return Choose Numerator: , Choose Denominator: = Factor Number of Years Internal Rate of Return Factor 2, Compute the machine's net present value. Use a discount rate of 14%. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.) Now 5 Purchase of machine Annual cash inflows Total cash flows Discount factor (14%) Present value Net present value

Explanation / Answer

Answer:

1)

2)

3)

Choose Numerator / Choose Denominator = Factor Number of years Internal rate of return Machine Cost / Net increase in Cashflow 137320 / 40000 3.433 5 14% (PFAF table 5 year row)

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