Dunkin Lab plans to purchase a new centrifuge machine for its Saskatchewan facility. The machine costs $333,000 and is expected to have a useful life of five years, with a terminal disposal value of $33,000. Savings in cash operating costs are expected to be $100,000 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $16,000 needs to be maintained at all times, but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Dunkin Lab's required rate of return is 14%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. (Click the icon to view the present value factor table.) Click the icon to view the present value annuity factor table.) Required Requirement 1. Calculate net present value. (Round amounts to the nearest whole dollar.) PV Factor at Total Present i=14%, n=5 Net Cash Inflow Value Net present value: Present value of annuity of equal annual net cash inflows per year = Present value of terminal disposal value Present value of working capital Net initial investment Net present value LLI ME Douromont 2 Calculato internal rate of return Dunkin Lab plans to purchase a new centrifuge machine for its Saskatchewan facility. The machine costs $333,000 and is expected to have a useful life of five years, with a terminal disposal value of $33,000. Savings in cash operating costs are expected to be $100,000 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $16,000 needs to be maintained at all time but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Dunkin Lab's required rate of return is 14%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Click the icon to view the present value factor table.) (Click the icon to view the present value annuity factor table.) Required Requirement 2. Calculate internal rate of return. Use a trial-and-error approach and straight-line interpolation as necessary. The IRR (internal rate of return) is %. (Round all present value calculations to the nearest whole dollar and round the IRR to two decimal places, X.XX%.) Requirement 3. Calculate accrual accounting rate of return based on net initial investment. Assume straight-line depreciation. The AARR (accrual accounting rate of return) is %. (Round interim calculations to the nearest whole dollar. Round the final rate to two decimal places, X.XX%.) Dunkin Lab plans to purchase a new centrifuge machine for its Saskatchewan facility. The machine costs $333,000 and is expected to have a useful life of five years, with a terminal disposal value of $33,000. Savings in cash operating costs are expected to be $100,000 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $16,000 needs to be maintained at all times, but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Dunkin Lab's required rate of return is 14%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Click the icon to view the present value factor table.) (Click the icon to view the present value annuity factor table.) Required Requirement 3. Calculate accrual accounting rate of return based on net initial investment. Assume straight-line depreciation. The AARR (accrual accounting rate of return) is %. (Round interim calculations to the nearest whole dollar. Round the final rate to two decimal places, X.XX%.) Requirement 4. You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods? If your decision is based on the DCF model, the purchase made because the net present value is and the internal rate of return the required rate of return. You may be reluctant to the machine if you believe that your performance may actually be measured using This approach would show a return on the initial investment that the required rate. Dunkin Lab plans to purchase a new centrifuge machine for its Saskatchewan facility. The machine costs $333,000 and is expected to have a useful life of five years, with a terminal disposal value of $33,000. Savings in cash operating costs are expected to be $100,000 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $16,000 needs to be maintained at all times, but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Dunkin Lab's required rate of return is 14%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. (Click the icon to view the present value factor table.) Click the icon to view the present value annuity factor table.) Required Requirement 1. Calculate net present value. (Round amounts to the nearest whole dollar.) PV Factor at Total Present i=14%, n=5 Net Cash Inflow Value Net present value: Present value of annuity of equal annual net cash inflows per year = Present value of terminal disposal value Present value of working capital Net initial investment Net present value LLI ME Douromont 2 Calculato internal rate of return Dunkin Lab plans to purchase a new centrifuge machine for its Saskatchewan facility. The machine costs $333,000 and is expected to have a useful life of five years, with a terminal disposal value of $33,000. Savings in cash operating costs are expected to be $100,000 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $16,000 needs to be maintained at all time but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Dunkin Lab's required rate of return is 14%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Click the icon to view the present value factor table.) (Click the icon to view the present value annuity factor table.) Required Requirement 2. Calculate internal rate of return. Use a trial-and-error approach and straight-line interpolation as necessary. The IRR (internal rate of return) is %. (Round all present value calculations to the nearest whole dollar and round the IRR to two decimal places, X.XX%.) Requirement 3. Calculate accrual accounting rate of return based on net initial investment. Assume straight-line depreciation. The AARR (accrual accounting rate of return) is %. (Round interim calculations to the nearest whole dollar. Round the final rate to two decimal places, X.XX%.) Dunkin Lab plans to purchase a new centrifuge machine for its Saskatchewan facility. The machine costs $333,000 and is expected to have a useful life of five years, with a terminal disposal value of $33,000. Savings in cash operating costs are expected to be $100,000 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $16,000 needs to be maintained at all times, but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Dunkin Lab's required rate of return is 14%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. Click the icon to view the present value factor table.) (Click the icon to view the present value annuity factor table.) Required Requirement 3. Calculate accrual accounting rate of return based on net initial investment. Assume straight-line depreciation. The AARR (accrual accounting rate of return) is %. (Round interim calculations to the nearest whole dollar. Round the final rate to two decimal places, X.XX%.) Requirement 4. You have the authority to make the purchase decision. Why might you be reluctant to base your decision on the DCF methods? If your decision is based on the DCF model, the purchase made because the net present value is and the internal rate of return the required rate of return. You may be reluctant to the machine if you believe that your performance may actually be measured using This approach would show a return on the initial investment that the required rate
