Internal Rate of Return and Net Present Value LO14–2, LO14–3 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?