EXERCISE 14-3 Internal Rate of Return LO14-3 Page 658 Wendell's Donut Shoppe is investigating the purchase of an $18,600 donut-making machine with a six-year useful life. The new machine would reduce labor costs by $3,800 per year. In addition, it would allow the company to produce one new style of donut, resulting in the sale of 1,000 dozen more donuts each year. The company realizes a contribution margin of $1.20 per dozen donuts sold. Required: 1. What are the new machine's total annual cash inflows? 2. What discount factor should be used to compute the new machine's internal rate of return? 3. Using percent? Exhibit 14B-2 in Appendix 14B as a reference, what is the new machine's internal rate of return to the nearest whole 4. In addition to the data given previously, assume 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; find the discount rate that will cause the net present value to be closest to zero.)