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 estimated 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. Required: 1. What is the machine's internal rate of return? Note: Round your answer to the nearest whole percentage. 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 $44,130 per year. Under these conditions, what is the internal rate of return? Note: Round your answer to the nearest whole percentage.
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 estimated 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. Required: 1. What is the machine's internal rate of return? Note: Round your answer to the nearest whole percentage. 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 $44,130 per year. Under these conditions, what is the internal rate of return? Note: Round your answer to the nearest whole percentage.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 estimated
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.
Required:
1. What is the machine's internal rate of return? Note: Round
your answer to the nearest whole percentage.
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 $44,130 per year.
Under these conditions, what is the internal rate of
return? Note: Round your answer to the nearest
whole percentage.
1. Internal rate of return
%
2. Net present value
3. Internal rate of return
%
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