Wendell$’$s Donut Shoppe is investigating the purchase of a new $$34,100$ donut$-$making machine. The new machine would permit the company to reduce the amount of part$-$time help needed, at a cost savings of $$5,600$ per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of $1,500$ dozen more donuts each year. The company realizes a contribution margin of $$2\mathrm{.}50$ per dozen donuts sold. The new machine would have a six$-$year useful life.

to determine the appropriate discount factor$($s$)$ using tables.

Required:

What would be the total annual cash inflows associated with the new machine for capital budgeting purposes?

What discount factor should be used to compute the new machine$’$s internal rate of return?

Note: Round your answers to $3$ decimal places.

What is the new machine$’$s internal rate of return?

Note: Round your final answer to the nearest whole percentage.

In addition to the data given previously, assume that the machine will have a $$8,985$ 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.$)$

Note: Round your final answer to the nearest whole percentage.

Answer rating: 100% (QA)

1 Total Annual Cash Inflows Cost savings from reduced parttime help 5600 Additional donut sales 1500 ... View the full answer