Exercise 13-15 Internal Rate of Return and Net Present Value [LO13-2, LO13-3]

Henries 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. Henries has estimated that the new machine would increase the companys 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.

Compute the machines internal rate of return to the nearest whole percent.

2.Compute the machines net present value. Use a discount rate of 14%. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)

3.	Suppose that the new machine would increase the companys annual cash inflows, net of expenses, by only $38,090 per year. Under these conditions, compute the internal rate of return to the nearest whole percent.