$3$

Exercise $7-15($Algo$)$ Internal Rate of Return and Net Present Value $[$LO$7-2,$ LO$7-3]$

$2$ points

References

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.

Click here to view Exhibit $7$B$-1$ and Exhibit $7$B$-2,$ to determine the appropriate discount factor$($s$)$ using table.

Required:

What is the machine's internal rate of return?

Note: Round your answer to the nearest whole percentage, i$.$e$.0\mathrm{.}123$ should be considered as $12\%.$

$2.$ 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 $$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$.0\mathrm{.}123$ should be considered as $12\%.$

$\backslash$table$[[1.$ Internal rate of return,$14,\%$