EXERCISE 14-3 Internal Rate of Return 1014-3 Wendell' Donut Shoppe is investigating the purchase of a new 18.600 donut making machine. The new machine would Page 670 permit the company to reduce the amount of part-time help needed, at a cost savings of 53.800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1.000 doren more donuts each year. The company realizes a contribution margin of $1.20 per dozen donuts sold. The new machine would have a sixyear useful life 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 machines internal rate of return? 3. Using Exhibit 148-2 in Appendix 148 as a reference, what is the new machine internal rate of return to the nearest whole percent 4. In addition to the data given previously, asume that the machine will have a $9.125 salvage value at the end of six years. Under these conditions, what is the internal rate of return to the nearest whole percent? (Hint: You may find it helpful to use the net present value approach: And the discount rate that will cause the net present value to be closest to zero.)