Henries Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The
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Question:
Henries Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $137,320, including freight and installation. Henries estimated the new machine would increase the companys cash inflows, net of expenses, by $40,000 per year. The machine would have a five-year useful life and no salvage value.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
Required:
- What is the machines internal rate of return?
Note: Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.
- Using a discount rate of 14%, what is the machines net present value? Interpret your results.
- Suppose the new machine would increase the companys annual cash inflows, net of expenses, by only $38,090 per year. Under these conditions, what is the internal rate of return?
Note: Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.
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