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
Chapter # 14
Section: Exercises
Problem: 15
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Question Posted: December 04, 2020 01:18:11