Henrie’s Drapery Service is investigating the purchase of a new machine for clea

Question

Henrie’s Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $171,650, including freight and installation. Henrie’s has estimated that the new machine would increase the company’s cash inflows, net of expenses, by $50,000 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.

Exhibit 13B-1:

  Exhibit 13B-2:

Compute the machine’s internal rate of return to the nearest whole percent.

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.)

Suppose that the new machine would increase the company’s annual cash inflows, net of expenses, by only $47,610 per year. Under these conditions, the internal rate of return to the nearest whole percent.

Henrie’s Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $171,650, including freight and installation. Henrie’s has estimated that the new machine would increase the company’s cash inflows, net of expenses, by $50,000 per year. The machine would have a five-year useful life and no salvage value.

Explanation / Answer

Henrie’s Drapery Service is investigating the purchase of a new machine for clea

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