Wendell’s Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new machine would permi…
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Question “Wendell’s Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new machine would permi…”
Wendell’s Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $3,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,000 dozen more donuts each year. The company realizes a contribution margin of $1.20 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 7B-1 and Exhibit 7B-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? (Round your final answer to the nearest whole dollar amount.) 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 your answer to whole decimal place i.e. 0.123 should be considered as 12%) 4. In addition to the data given previously, assume that the machine will have a $9,125 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 answer to whole decimal place i.e. 0.123 should be considered as 12%.) 1. Annual cash inflows 2. Discount factor Internal rate of 3 return % Internal rate of 4. return
Answer
D Annyol cashflow commnal cost savings + Incremento donation 2 $3800+ (lavex 1.20 = $3800+ $1200 = $5000) To calculate the IRR Discount factor, we should use these Discount Factors: Tot xeass Discount factors @ 16. Discount fort 0.861,0.862,0.743 0.638 and0.641 = $3800+ (lavex 1.20 = $5000) So annual cash flow would be $5000. If we use Tot xeass Discount factor @ 16.
Calculation of IRR IRR i.e. at IRR = IRR P. R. of Outflow Discount Yeods factor 0.909,0.826,0.751,0.683 Almyol. cash pole soo 500 cash bus pret cantha 4545 410 3755 3105 2820 21769 0.5683 Almyol. – 20% P.r. of cash flow, 16625-18600 217694 ato Lor
R-lot 20-10% 18600-21769 3169 -5144 E-10 r-10 – 3169810 5144 6016+10 So IRR = 16.167 of roundoff = 16% Answer. I calculation of IRR using Solvage volue Discount factor Annual Yeats PDO 2017 Proof Cash flour cash flow 0.833 4065 0.694 3470 0.5779 2895 0.482 Soro 2410 IRR = 16.167 Answer.
Years Discount Factor. 0.512 0.410 0.328 0.0.262 0.262 Amungono. Ang was so IRR or
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