Wendell’s Donut Shoppe is investigating the purchase of a new $31,300 donut-maki
ID: 2490071 • Letter: W
Question
Wendell’s Donut Shoppe is investigating the purchase of a new $31,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,300 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,300 dozen more donuts each year. The company realizes a contribution margin of $3.00 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.
1.
What would be the total annual cash inflows associated with the new machine for capital budgeting purposes?
Find the internal rate of return promised by the new machine to the nearest whole percent.
In addition to the data given previously, assume that the machine will have a $13,000 salvage value at the end of six years. Under these conditions, compute the internal rate of return to the nearest whole percent. (Round your final answer to nearest whole percentage.)
2.Find the internal rate of return promised by the new machine to the nearest whole percent.
Choose numerator / choose denominator = factor number of years internal rate of refturn / = / = % 3.In addition to the data given previously, assume that the machine will have a $13,000 salvage value at the end of six years. Under these conditions, compute the internal rate of return to the nearest whole percent. (Round your final answer to nearest whole percentage.)
Explanation / Answer
1.
Thus, annual Cash inflow is $ 9,200.
3.
Thus, IRR is 22.91%.
Statement of Annual cash inflow Amount($) Saving of cost A 5,300.00 Cash inflow from selling of additional unit: Additional Unit B 1,300.00 Contribution margin per unit C 3.00 Total Cash inflow D=B*C 3900.000 Total Annual Cash inflow A+D 9,200.000Related Questions
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