# Henries Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost

## Question:

Henrie’s 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. Henrie’s estimated the new machine would increase the company’s cash inflows, net of expenses, by $40,000 per year. The machine would have a five-year useful life and no salvage value.

**Required:**

1. What is the machine’s internal rate of return to the nearest whole percent?

2. Using a discount rate of 14%, what is the machine’s net present value? Interpret your results.

3. Suppose the new machine would increase the company’s annual cash inflows, net of expenses, by only $37,150 per year. Under these conditions, what is the internal rate of return to the nearest whole percent?

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**Related Book For**

## Managerial Accounting

**ISBN:** 9781260247787

17th Edition

**Authors:** Ray Garrison, Eric Noreen, Peter Brewer

**Question Details**

**14**

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