Wendell\'s Donut Shoppe is investigating the purchase of a new $47,300 donut-mak

Question

Wendell's Donut Shoppe is investigating the purchase of a new $47,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,300 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,600 dozen more donuts each year. The company realizes a contribution margin of $1.50 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? Annual savings in part-time help Added contribution margin from expanded sales Annual cash inflows 2. Find the internal rate of return promised by the new machine to the nearest whole percent. Internal Rate of Return oose Numerator: Choose Denominator: Factor s Internal rate of return = Factor

Explanation / Answer

1.

2.

Annual Savings in Part time help          6,300 Annual contribution margin from expanded sales (2,600*1.5)          3,900 Annual Cash inflows       10,200

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