Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $171,650, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $50,000 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? Note: Round your answer to the nearest whole percentage. 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 $44,130 per year. Under these conditions, what is the internal rate of return? Note: Round your answer to the nearest whole percentage.
Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $171,650, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $50,000 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? Note: Round your answer to the nearest whole percentage. 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 $44,130 per year. Under these conditions, what is the internal rate of return? Note: Round your answer to the nearest whole percentage.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 2CE
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