Wendell’s Donut Shoppe is investigating the purchase of a new $42,700 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,400 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,400 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 14B-1 and Exhibit 14B-2, to determine 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
Wendell’s Donut Shoppe is investigating the purchase of a new $42,700 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,400 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,400 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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. What would be the total annual
2. What discount factor should be used to compute the new machine’s
3. What is the new machine’s internal rate of return? (Round your final answer to the nearest whole percentage.)
4. In addition to the data given previously, assume that the machine will have a $12,840 salvage value at the end of six years. Under these conditions, what is the internal rate of return? (Hint: You may find it helpful to use the
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