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Exercise 13-15 Internal Rate of Return and Net Present Value [LO13-2, LO13-3) Henrie's 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. Henrie's estimated the new machine would increase the company's cash inflows, net of expenses, by $40,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 138-1 and Exhibit 13B-2, to determine the appropriate discount factors) using table. Required: 1. What is the machine's internal rate of return? (Round your answer to whole decimal place i.e. 0.123 should be considered as 12%.) 2. Using a discount rate of 14%, 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 $34,390 per year. Under these conditions, what is the internal rate of return? (Round your answer to whole decimal place i.e. 0.123 should be considered as 12%.) 1. Internal rate of return 2. Net present value 3. Internal rate of return EXHIBIT 138-1 Persent of the Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.070 0.362 0.855 0.847 0.840 0.833 0.826 0.820 0813 0.806 0.800 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0312 0797 0783 0.769 0.756 0743 0.731 0.718 0.706 0694 0.683 0.672 0.661 0.650 0.640 3 0889 0.864 0.840 0.816 0.794 0.772 0.751 0731 0 712 0 693 0675 0658 0641 0.624 0 609 0 593 0579 0.564 0.551 0.537 0.524 0.512 4 0 855 0823 0.792 0.763 0.735 0.708 0683 0 659 0 636 0.613 0.592 0.572 0552 0534 0516 0.499 0.482 0.467 0.451 0.437 0.423 0.410 5 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.386 0.370 0.355 0.341 0.328 0.790 0.746 0.7059.666 0.630 0.596 0.564 0.535 0.507 0.400 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.262 7 0.750 0.711 0.665 0.623 0.583 0.547 0 513 0482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.263 0.249 0 235 0.222 0.210 8 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0404 0.376 0.351 0.327 0 305 0.285 0.266 0.249 0233 0218 0.204 0.191 0.179 0.168 0.703 0.645 0.592 0.544 0.500 0.450 0424 0.391 0.361 0.333 0.308 0.284 0263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.134 10 0.676 0.614 0.558 050B 0.463 0.422 0 386 0352 0322 0.295 0 270 0247 0227 0.208 0.191 0.176 0.162 0.149 0.137 0.125 0.116 0.107 12 13 15 0.650 0.585 0.527 0.475 0.429 0.388 0 350 0317 0 287 0 251 0237 0215 0 195 0 178 0.162 0.148 0.135 0.123 0.112 0 103 0.094 0.086 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.102 0.092 0.083 0.076 0.069 0.601 0.530 0.469 0415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.084 0.075 0.068 0.061 0.055 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0232 0.205 0.181 0.160 0.141 0.125 0.111 0.000 0.00 0.078 0.069 0062 0055 0.049 0.044 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0.040 0.035 0534 0.458 0.394 0339 0.292 0.252 0218 0.18 0.163 0.141 0.123 0.107 0093 0.081 0.071 0062 0.054 0.047 0042 0036 0.032 0.028 0513 0436 0371 0317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.00 0.069 0.060 0,052 0.045 0.039 0034 0030 0026 0.023 0.494 0.416 0.350 0296 0.250 0.212 0.10 0.153 0.130 0.111 0095 O OR1 0069 0 059 0.051 0044 0028 0.032 0.028 0024 0.021 0.018 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.027 0.023 0.020 0.017 0.014 0.456 0 377 0 312 0 258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.022 0.019 0016 0.014 0.012 16 17 18 19 20 21 23 24 25 26 27 28 29 30 40 0.439 0.359 0.294 0 242 0.199 0.164 0.135 0.112 0.003 0.077 0.064 0.053 0.044 0.037 0.031 0026 0.022 0.018 0,015 0013 0.011 0,009 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.101 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0022 0.018 0.015 0.013 0011 0.009 0.007 0.406 0.326 0262 0211 0.170 0.138 0.112 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 0018 0.015 0012 0.010 0009 0.007 0.006 0.390 0310 0247 0.197 0.158 0.126 0102 O OB2 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0015 0013 0.010 0.008 0.007 0.006 0.005 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016 0013 0.010 0.009 0.007 0.006 0.005 0.004 0.361 0.281 0.220 0.172 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0011 0.009 0.007 0.006 0.005 0.004 0.003 0.347 0.268 0.207 0.161 0.125 0.098 0.076 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003 0.002 0.333 0.255 0.196 0.150 0.116 0.090 0.069 0.054 0.042 0.033 0.026 0.020 0.016 0.012 0.010 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.321 0.243 0.185 0.141 0.107 0082 0.063 0.048 0.037 0.029 0,022 0.017 0.014 0.011 0.000 0.000 0.005 0.004 0.003 0.002 0.002 0.002 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0,015 0,012 0.009 0.007 0.005 0.004 0.003 0.003 0.002 0.002 0.001 0.208 0.142 0.097 0.067 0.046 0.032 0022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 EXHIBIT 130-2 Present Value of an Annuity of $t in Amers. Periods 1 4 5 6 7 B 9 10 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 0.962 0.952 0.943 0935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0 862 0855 0.847 0.840 0.833 0.826 0.820 0.813 0 806 0.800 1.886 1859 1833 1808 1783 1759 1736 1713 1.690 1.668 1.647 1626 1605 1 585 1.566 1547 1.528 1.509 1.492 1474 1.457 1 440 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2444 2402 2361 2022 2202 2246 2210 2 174 2140 2106 2074 2042 2011 1.981 1952 3.530 3.546 3.465 3387 3312 3240 3 170 3102 3037 2974 2914 2855 2.798 2 743 2.690 2.639 2589 2540 2494 2.448 2.404 2362 4.452 4329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3517 3.433 3.352 3274 3199 3.127 3.058 2.991 2.926 2.864 2.803 2.745 2.689 5242 5.076 4.917 4.767 2622 4.486 4355 4231 4.111 2998 289 2.784 2685 2.589 3.498 3410 2326 3245 3.167 3092 3.020 2.951 6.002 5.786 5.582 5.389 5.206 5033 4.868 4712 4.564 4.423 4288 4.160 4 039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161 6.733 6.463 6.210 5971 5.747 5.535 5335 5 146 4 968 4.799 4 639 4.487 4 344 4.207 4078 3.954 3.837 3.726 3.619 3.518 3.421 3.329 7.435 7.108 6.802 6515 6.247 5.995 5.759 5.537 5328 5.132 4 9464,222 4.607 4.451 4 303 4.163 4031 3.905 3.786 3.673 3.566 3.463 8.111 7.722 7360 7024 6.710 6.418 6.145 5.000 5.650 426 5 216 5,019 4833 4.659 4.494 4.319 4.192 4054 3.923 3.799 3.682 3.571 8.760 8.306 7.8877499 7.139 6.805 6 495 6. 207 5.938 5,687 5.453 5.234 5029 4,836 4,656 4.486 4.327 4.177 4035 3.902 3.776 3.656 385 3.063 8384 7.040 7.536 7161 6814 6 402 6.194 5918 5.660 5.421 5.197 4.088 4.793 4.611 4.439 4.278 4 127 3.985 3851 3.725 9.986 9.394 8.853 8.358 7.904 7487 7.103 6.250 6.424 6.122 5.842 5583 5 342 5.118 4.910 4715 4.533 4.362 4.203 4053 3.912 3.780 10 563 9.899 9.295 8.745 8.244 7.786 7 367 6 982 6 628 6 302 6.002 5.724 5.468 5229 5.000 4.802 4.611 4.432 4.265 4.108 3.962 3.824 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4 675 4,489 4.315 4.153 4001 3.859 11.652 10 B38 10.106 9447 8851 8313 7824 7 379 6974 6,604 6.265 5 954 5 668 5.405 5.162 4,038 4730 4.536 4357 4.189 4033 3887 12.166 11 274 10 47 9763 9.122 8544 8022 7549 7.120 6.729 6.373 6.047 5.749 5475 5222 4.990 4775 4.576 4 391 4219 4059 1910 12.659 11.690 10328 10.0599372 8 756 8 201 7.702 7.250 6040 6.467 6.128 5.818 5 534 5.273 5,033 4812460 4419 4243 4080 1928 12.134 12.085 11.158 10,336 9604 B.950 8.365 7839 7.366 6938 6550 6.198 5.877 5.584 5.316 5.070 4,843 4635 4.442 4263 4097 3942 13.590 12.462 11470 10.594 98189 129 8514 7.963 7.469 7 025 6623 6 259 5929 5628 5.353 5.101 4.870 4657 4460 4279 4110 2954 9 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 40 1402012021 11 764 10 16 10 017 9292 8649 8075 7562 7.102 6 687 6312 5 973 5665 5 384 5.127 4.891 4.675 4.476 4292 4121 2963 14.451 13.163 12042 11 061 10 201 9.442 8.772 8.176 7645 7.170 6743 6.359 6 011 5.696 5.410 5.149 4.909 4.690 4488 4302 4.130 3970 14857 134912300 11.222 10 371 9580 8883 8266 7.718 7230 6792 6 399 6044 5.723 5.432 5.167 4925 4.703 4.490 411 4137 3976 15 247 13 709 12.550 11460 10.529 9.707 BOBS 348 7.734 7283 6.835 6.434 6073 5746 5 451 5182 4937 4713 4 507 431 4 142 2981 15 622 14 094 12 7311654 10 675 98239.077 8.422 7843 7.330 6.873 6.464 6097 5.766 5.467 5.195 4948 4.721 4514 413 4147 2985 15 983 14 375 13 003 11.026 10.810 9929 9.161 438 7.896 7 372 6.906 6.491 6.118 5783 5.480 5.206 4 956 4728 4520 412 4151 OR 16 330 14 643 12211 11 7 10 935 10027 9 237 8548 7943 7.409 6.935 6514 6.136 5.798 5.492 5215 4964 4734 4524 432 4156 2900 16663 149 12406 12.137 11051 10.116 9 307 8 602 7984 7441 6.961 6534 6.152 5.810 5 502 5223 4970 4794528 335 4.157 3992 16 984 15.141 1591 12278 11.158 10.1989 370 8 650 8 022 7470 6 983 6.551 6.166 5.620 5 510 5229 4975 47494531 433 4150 1004 17.292 15 372 13.765 12400 11.258 10 274 9 427 3694 8055 7 495 7003 6 566 6.177 5.829 5 517 5235 4979 476 4534 43394160 2005 19.793 17.159 15 046 13.332 11925 10.757 9779 .951 8.244 7.634 7.105 6,642 6.233 5.8715.548 5.25849974760456 437 4 166 3999