Wendell's Donut Shoppe is investigating the purchase of an $42,700 donut-making machine with a six-year useful life. The new machine would reduce labor costs by $6,400 per year. In addition, it 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. Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What are the new machine's total annual cash inflows? 2. What discount factor should be used to compute the new machine's internal rate of return? Note: Round your answer to 3 decimal places. 3. What is the new machine's internal rate of return?

Wendell's Donut Shoppe is investigating the purchase of an $42,700 donut-making machine with a six-year useful life. The new machine would reduce labor costs by $6,400 per year. In addition, it 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. Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What are the new machine's total annual cash inflows? 2. What discount factor should be used to compute the new machine's internal rate of return? Note: Round your answer to 3 decimal places. 3. What is the new machine's internal rate of return?

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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Komoka Enterprises needs someone to supply it with 72,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $950,000 to install the equipment necessary to start production. The equipment will be depreciated at 30% (Class 10), and you estimate that it can be salvaged for $88,000 at the end of the five-year contract. Your fixed production costs will be $320,000 per year, and your variable production costs should be $15.50 per carton. You also need an initial net working capital of $150,000. If your tax rate is 35% and you require a 14% return on your investment, what bid price should you submit? Keep intermediate results to at least 5 decimal places, Minimum Bid price to 2 decimal places is $ LE
The Hub Store at a university in eastern Canada is considering purchasing a self-serve checkout machine similar to those used in many grocery stores and other retail outlets. Currently the university pays part-time wages to students totalling $58,000 per year. A self-serve checkout machine would reduce part-time student wages by $38,000 per year. The machine would cost $300,000 and has a 10-year useful life. Total costs of operating the checkout machine would be $5,600 per year, including maintenance. Major maintenance would be needed on the machine in five years at a total cost of $10,600. The salvage value of the checkout machine in 10 years would be $43,000. The CCA rate is 25%. Management requires a 10% after-tax return on all equipment purchases. The company’s tax rate is 30%. Required:1. Determine the before-tax net annual cost savings that the new checkout machine will provide. 2-a. Using the data from (1) above and other data from the exercise, compute the checkout…
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Wendell’s Donut Shoppe is investigating the purchase of a new $40,000 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,200 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 $2.40 per dozen donuts sold. The new machine would have a six-year useful life. Required: 4. In addition to the data given previously, assume that the machine will have a $10,515 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 net present value approach; find the discount rate that will cause the net present value to be closest to zero.) (Round your final answer to the nearest whole percentage.)
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