40.

Wendells Donut Shoppe is investigating the purchase of a new $44,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,000 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,000 dozen more donuts each year. The company realizes a contribution margin of $2.00 per dozen donuts sold. The new machine would have a six-year useful life.

Click here to view Exhibit 8B-1 and Exhibit 8B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes?

Annual savings in part-time help	$6,000
Added contribution margin from expanded sales	4,000
Annual cash inflows	$10,000

2. Find the internal rate of return promised by the new machine. (Round your 'IRR' answer to nearest whole percentage.)

Internal Rate of Return

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Factor

Number of years

Internal rate of return

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Factor

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3. In addition to the data given previously, assume that the machine will have a $20,000 salvage value at the end of six years. Under these conditions, compute the internal rate of return. (Round your final answer to nearest whole percentage.)

internal rate of return __________%