Exercise 7-3 (Algo) Internal Rate of Return [LO7-3) Wendell's Donut Shoppe is investigating the purchase of a new $48,300 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $6,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,700 dozen more donuts each year. The company realizes a contribution margin of $2.00 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 7B-1 and Exhibit 78-2, 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 $15,685 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 retum 4. Internal rate of retum % % 25 EXHIBIT 7-1 Present Value of Star Period 5% 6% 7 RS 10% 105178213 19 15% 16% 17% 184 24 20% 224 225 1 0.962 0.952 0943 0905 0926 0917 0909 0.901 0.893 0885 087708700862 0855 0847 0840 0833 0.826 0820 081 0806 0.800 2 0925 0907 0890 0.873 0851 08420826 0812 0.797 0.783 0769 0756 0743 0731 0718 0706 0.694 0683 0672 0661 0650 0640 0889 0854 0800 0816 0.794 om 0751 0731 072 0693 06750658 0641 0624 0609 0593 0.579 0564 0551 0537 0.524 0512 4 0855 0823 01920763 0735 0708 0683 0659 0636 06130592 0572 0.552 0534 0.516 0499 0462 0.467 0451 0437 0423 0410 5 0822 0784 077 073 0681 0650 0621 0993 0567 0543 0519 0497 04760456 0437 0419 0402 0.386 03700355 0.341 0328 0790 076 0705 0666 0630 0596 0564 0535 0507 0480 0456 0432 04100390 0370 0352 0335 0.319 0303 0289 0275 0.262 7 0.750 0711 065 0623 0583 0542 0513 0482 0452 0425 0400 0376 0354 0333 0314 0296 0279 0253 0249 0.235 0222 0210 8 0731 06770627 05620540 0502 0.067 084 0 401 0376 0351 0327 0305 0785 0 266 0249 0233 0218 0204 0191 01790168 9 07030645 0.592 0544 05000460 0424 0391 0361 0333 0308 0281 0263 023 0225 0209 0194 01800167 0155 014 0134 10 0676 0614 0558 0508 0463 0422 036 0352 0322 0295 0270 0247 0227 0208 0191 01760162 03490337 0126 0116 0107 11 0650 0585 0527 0475 0429 038 0350 0317 027 0261 0237 0215 01950178 0162 018 0135 0123 0112 0103 0094 0086 0625 0557 0.497 0.446 0397 0356 0319 0.286 0.257 0231 0208 0187 0168 0152 0137 0124 01120102 0.092 0083 0076 0069 1 OG01 0530 0469 045 0368 0.326 0290 0.258 0229 0204 0182 0163 0145 0130 0.116 004 0093 004 0.075 0068 0061 0.055 14 0577 0505 0442 0388 0340 0.299 0.253 0232 0205 0181 0160 0141 0.125 0111 0 099 088 0078 0069 0.062 0055 0.049 0044 15 0555 0681 0417 0362 0.315 0275 0.739 0209 0183 0160 0100123 0108 0095 0084 0074 0065 0057 0051 0045 0040 0035 16 0534 0458 0394 0139 0.792 0752 02180RR 016 0141 0123 0907 0093 0081 0071 0062 0054 0047 0042 0036 00320028 17 0503 006 0371 030 022002210198 010 0546 0125 0108 0093 000 0069 0.060 0052 0045 0039 0034 0.030 0026 0023 0.494 0415 0350 0296 0.250 0212 00 053 0130 0111 00950081 006 0059 0051 0041 0038 0032 0.028 0024 0021 0018 19 0475 0.396 0331 0277 0232 019 0364 018 0116 0098 0083 007000600051 0043 0.037 0031 0027 0.023 0020 001 004 20 0456 037 0312 025 075 0178 059 0124 004 0087 0073 0061 0051 0043 0037 0031 0026 0022 0.019 0056 001001 21 0439 059 0294 0742 0199 0164 015 0120093 0077 0064 0053 004 003 001 0026 0022 0.018 0015 0013 0011 0009 22 0422 0342 02780225 0184 01500123 0101 00H3 0068 0056 0046 0038 0032 0026 0022 001 005 00130010009 0007 23 0406 0126 0202 211 070 0138 01120091 0074 0060 0049 0000 0033 0027 0.022 0.018 00150012 000 0000 0007 0006 24 0300 0.310 0247 0197 0158 0126 0102 0082 0066 0053 0043 0035 0028 0023 0019 0015 000 000 0008 0007 0006 0.005 25 375 0295 02330184 014601560092 0074 0059 0047 003 0030 0024 0020 0011 0013 0010 0009 0007 0006 0005 0001 0361 021 02200172 01350106 DORA 0065 0053 004 0033 0026 0021 0.01 0.01 0011 0009 007 0005 0.005 0004 000 27 03410208 0207 0161 0175 0098 00760060 0047 0037 0029 0073 0018 001 001 0009 0007 0.006 0005 0004 0003 0002 28 0333 0255 0196 0150 0115 0090 069 0054 0042 0033 0026 0020 0086 0012 0010 0000 0000 0005 0004 0000 0002 0002 02210243 0185 0461 0102 0082 003 004 0037 0029 0022 00100M 0011 000 000 0005 0000 0000 0002 0002 0.002 6308 0281 01740131 0099 0075 0057 0044 003 0026 002000150012 0000 000 0005 0004 000 0001 0002 0002 0001 40 0208 0142 009 0067 006 00220022 005 0011 000 000 0004 0.003 0002 0001 0001 0001 0000 0000 0000 0000 0000 EXHIBIT 78-2 Present Value of an Annulty of Sin Ameara ! 9 Periods as 5 7 8 103 145 15 17 18 19 20 21 22 23 24 25 1 0962 099 090 0935 0926 09170909 090 0893 085 0877 0.870 0.862 0.855 080 0840 083 0826 0820 ORU 08060 800 2 18 19 1833 180 1783 1759 1736 173 1690 1668 1647 1626 1605 1585 1566 1547 1528 1509 1492 14141457 1440 3 2775 2723 2673 2624 2577 2531 2.487 240 2412 2351 2322 2283 2246 2210 2174 2140 2106 2074 2012 2011 191 1952 4 36303546 3465 387 3.312 3.240 1170 3102 3037 2974 2.91 2855 2798 2743 2690 2639 2589 2540 2494 2448 2404 22 5 4452 43794212 4100 3.993 3.890 37913596 3605 357 3.433 3.152 3274 3199 3127 3.058 2991 2926 2864 2803 2745 2689 5242 50764917 4767 4623 4486 4355 4231 4111 3.998 3.889 3784 3585 3589 3498 3.4503 326 3245 3567 3092 3020 2951 7 50025 786 5582 S389 5206 5033 4868 472 4564 4423 4288 4160 4039 3922 3812 37063605 3508 3416 3327 3242 3161 673364636210 5971 57475535 5335 516 496 47994639 4487 4344 4207 4078 3954 3837 3.726 3619 3518 3.421 3.329 2435 7109 6802 6515 6247 5995 5759 5537 5328 5132 496 4772 4607 4451 4303 4363 40312905 37863673 3566 3463 30 7722 7360 7024 6700 6.418 6145 589 5650 5626 526 5019 4833 4659 449 439 41921054 3923 3799 3682 3571 11 8760830678877499 7719 68056496 6207 5.938 5687 553 5 234 5029 48364656 4486 4327 477 4035 3.902 37763656 12 93858 863 384 7943 7536 7551 681 5:492 619 5918 5660 5421 5197 4988 479346114439 4278 4127 3985 3851 3725 13 99859.3948853 358 7.904 7487 7103 5750 6.6M 6122 58425583 5342 51194910 4715 4533 4362 4203 4053 3.912 3.780 14 30.563 9899 9.295 8.745 8244 7786 23676.962 6628 6302 6.002 57245468 5229 5008 4802 461 4432 1265 41083962 324 15 103809712 9108 8559 061 7606 7191 5891 602 642 5847 5575 5 324 5092 48 4675 449 4.11541534001 3859 16 116523101069467 8851313 7824 737 691 6604 6265 5954 566 5405 512 4908 4730 4536 4357 41894033 3887 12 2.366 11274 10477 9763 9122 8544807275497120 6729 6.373 6042 5749 5475 5222 4990 4775 4576 4391 4219 4050 3 910 18 12659 110 10828 30059 9.372 756 8.201 77022250 6.70 6467 6128 5885534 52735033 48124608 4419 4243 4080 128 31412085 1158 236 9.6048950 8.365 78297366 6938 655061985.877 5584 5316 5070 4813 465 4442 426 4097 392 20 0 12.062 11470M 918 9120 254 76 7469 7025 6623 6259 5929 5628 5353 51014170 4657 44604279 4110 3954 21 M079 1221 116436 1001 9202601 8075 7562 702 662 632 593 5665 534 5127 4891 4675 4476 429 41213963 22 M451 13 1201211061 10.2009.M2 81% 7645 2870 6743 659 601 5696 5410 519 459 4690 4488 4302 4130 3.970 M#5 39 120 11272_10371 9580** *.266 77 7230 6292 6399 6044 572 542 516 4925 4703 4499 4311 4137 376 24 15.247 799 2550 11400 10520 9207 2985 8348 774 70 635 6634 6073 5740 5451 51821.907 4713 507 431 41433981 15622 MM 12.78 11654 1655 923 9077 8472 27330633 644 60975766 5467 51954948 471 4514 4373 4147315 26 1596 14.375 71001 100 99233161 84 786 7372 6906 6.491 6118 5783 54805205 456 477 4520 4328 4151 16.330 14643 1211 1987 109351002) 9237 8568 2963 7609 6905 654 6036 579 5492 5215 4964 4734 4524 432 4154 3090 28 16.66 14.89 1406 117 11051901169307 1.602 7984 7441 6961 6534 6152 5410 5502 52234970 473945284335 4153992 16.580 15141 1581 0.27 1158101989:20 WOD 022 7470 698 6551 6166 58205590 5.229 4575 43 4531 4332 415 394 30 1729215372 US 12.49 1125 10274 4427 055 74967003566 6177 512 5517 5235 4979 416 4534 439 40 40 3793 1799 50413399 11925 10757 79 951 8244 7634 78056642 6233 587 5548 5 258 459747604544 4347 46 3999