0.00 points Henrie\'s Drapery Service is investigating the purchase of a new mac
ID: 2585509 • Letter: 0
Question
0.00 points Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $137,280, 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 138-1 and Exhibit 138-2, 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 Retur Choose Numerator: I 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% Net present valueExplanation / Answer
1 Computation of Internal rate of return of the machine factor for Internal rate of return =Investment required / Annual net cash inflow factor for internal rate of return = $137,280 /$40,000 =3.432 By seeing at exhibit 13B-2 and scanning along the period line , a factor of 3.432 represent 14% as internal rate of return 2 Computation of net present value of the machine Present value of Annual cash inflow at Discount rate of 14% = Annual cash inflow * present value annual factor at 14% for 5 years =$40,000 *3.4330 =$137320 Net present value Present value of Cash inflows 137320 Less: Initial cost 137280 NPV 40 $40 is neglisable , the at 14 % NPV is Equal to Zero because 14% is internal rate of return 3 Internal rate of return if the Increse in annual cash inflows net of expenses is $37150 factor for internal rate of return = $137,280 /$37150 =3.695 By seeing at exhibit 13B-2 and scanning along the period line , a factor of 3.432 represent nearly at 11% as internal rate of return
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