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Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $117,320, including freight and installation.
Henrie's Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $117,320, including freight and installation. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $35,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 14B-1 and to determine the appropriate discount factor(s) using table. Required: 1. What is the machine's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%. 2. Using a discount rate of 15%, what is the machine's net present value? Interpret your results. 3. Suppose the new machine would increase the company's annual cash inflows, net of expenses, by only $30,160 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.)
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