1. Internal rate of return 2. Net present value 3. Internal rate of return 14 % 0 %

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
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Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost
$102,990, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of
expenses, by $30,000 per year. The machine would have a five-year useful life and no salvage value.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
Required:
1. What is the machine's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be
considered as 12%.)
2. Using a discount rate of 14%, what is the machine's net present value? Interpret your results.
3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $24,450 per year. Under
these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be
considered as 12%.)
1. Internal rate of return
2. Net present value
3. Internal rate of return
14%
0
%
Transcribed Image Text:Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $102,990, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $30,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. Required: 1. What is the machine's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 14%, what is the machine's net present value? Interpret your results. 3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $24,450 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value 3. Internal rate of return 14% 0 %
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