Exercise 12-3 (Algo) Internal Rate of Return [LO12-3] Wendell's Donut Shoppe is investigating the purchase of a new $52,100 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,100 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,800 dozen more donuts each year. The company realizes a contribution margin of $1.70 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 12B-1 and Exhibit 12B-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? 2. What discount factor should be used to compute the new machine's internal rate of return? (Round your answers to 3 decimal places.) 3. What is the new machine's internal rate of return? (Round your final answer to the nearest whole percentage.) 4. In addition to the data given previously, assume that the machine will have a $11,500 salvage value at the end of six years. Under these conditions, what is the internal rate of return? (Hint: You may find it helpful to use the net present value approach; find the discount rate that will cause the net present value to be closest to zero.) (Round your final answer to the nearest whole percentage.) 1. Annual cash inflows 2. Discount factor 3. Internal rate of return % 4. Internal rate of return % EXHIBIT 12B-2 Present Value of an Annuity of $1 in Arrears; 1/r(1-(1/(1+r)^n)) Periods 4% 5% 6% 7% 1 0.962 0.952 0.943 0.935 2 1.886 1.859 1.833 1.808 3 2.775 2.723 2.673 2.624 2.577 4 3.630 3.546 3.465 3.387 3.312 5 4.452 6 7 8 9 10 11 12 13 14 13% 14% 15% 8% 9% 10% 11% 12% 16% 17% 18% 19% 20% 21% 22% 239 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0.81 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.366 1.547 1.528 1.509 1.492 1.47 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.01 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.44 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.926 2.864 2.803 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3498 3.410 3.326 3.245 3.167 3.092 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.322 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 3.799 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5453 5.234 5.029 4.836 4.656 4.486 4.327 4.177 4.035 3.902 9.385 8.863 8.384 7.943 7536 7.161 6.814 | 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 4.278 4.127 3.985 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 4.362 4.203 4.053 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 15 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 12.659 11.690 10.828 10.059 9.372 8.756 8.2017.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608) 4.419 4.243 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 4.657 4.460 4.279 14.029 12.821 11.764 10.836 10.017 9.292 8.649 8.075 7.562 7.102 6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4476 4.292 14.451 13.163 12.042 11.061 10.201 9.442 8.772 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 14.857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4311 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6434 | 6.073 | 5.746 5.451 5.182 4937 47134507 4318 16 17 18. 19 20 21 22 23 24 EXHIBIT 12B-1 1 Present Value of $1; (1+r)" Periods 4% 5% 6% 7% 8% 1 0.962 0.952 0.943 0.935 0.926 2 0.925 0.907 0.890 0.873 0.857 0.842 3 0.889 0.864 0.840 0.816 0.794 4 0.855 0.823 0.792 0.763 5 0.822 0.784 0.747 0.713 0.681 6 0.790 0.746 0.705 0.666 0.630 7 0.760 0.711 0.665 0.623 0.583 0.547 8 0.731 0.677 0.627 0.582 0.540 0.502 0.467 9 0.703 0.645 0.592 0.544 0.500 0.460 0.424 10 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 9% 10% 11% 12% 13% 14% 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.270 0.247 0.227 0.208 0.191 15% 16% 17% 18% 0.476 0.456 0.437 0.410 0.390 0.370 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237. 12 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.215 0.195 0.178 0.162 0.187 0.168 0.152 0.137 13 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 14 0.577 0.505 0.442 | 0.388 15 0.555 0.481 0.417 16 0.534 0.458 0.394 17 18 0.494 0.416 0.350 19 20 21 22 0.422 0.342 0.278 0.340 0.299 0.263 0.232 0.362 0.315 0.275 0.239 0.209 0.339 0.292 0.252 0.218 0.188 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.296 0.250 0.212 0.180 0.153 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.439 0.359 0.294 0.242 0.199 0.164 0.135 0.112 0.150 0.123 0.101 0.205 0.181 0.183 0.160 0.146 0.130 0.116 0.104 0.226 0.184 0.093 0.083 0.123 0.163 0.141 0.123 0.107 0.125 0.108 0.093 0.111 0.095 0.081 0.098 0.083 0.070 0.087 0.073 0.061 0.077 0.064 0.053 0.068 0.046 0.160 0.140 0.141 0.125 0.111 0.099 0.108 0.095 0.084 0.056 23 0.406 0.326 0.262 0.211 0.170 0.138 0.112 0.091 0.074 0.060 0049 0.040 0.093 0.081 0.071 0.080 0.069 0.060 0.069 0.059 0.051 C 0.060 0.051 0.043 0 0.051 0.043 0.037 0 0.044 0.037 0.031 0 0.038 0.032 0.026 0 0.033 0.077 0.02 n