Wendell\'s Donut Shoppe is investigating the purchase of a new $42.900 donut mak

Question

Wendell's Donut Shoppe is investigating the purchase of a new $42.900 donut making machine. The new machine would permit the company to reduce the amount of part time help needed, at a cost savings of $5.800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2.000 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 13B-1 and Exhibit 138 2, to d etermine 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? 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.) 4. In addition to the data given previously, assume that the machine will have a $16,575 salvage value at the end of six years. Under these conditions, what is the internal rate of return? (Round your final answer to nearest whole percentage.) 1. Annual cash inflows 2 Discount factor 3 Internal rate of return 4 Internal rate of return

Explanation / Answer

Workings:

Please note that since you didn't attach the Discounting table, I have used excel to calculate the discounting factors and IRR.

Annual Cash flows    9,800.00 Discounting Factor 4.3770 IRR 10% IRR 15%

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