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Please find the IRR and ARR for this question Dunkin Lab plans to purchase a new centrifuge machine for its Saskatchewan facility. The machine costs
Please find the IRR and ARR for this question
Dunkin Lab plans to purchase a new centrifuge machine for its Saskatchewan facility. The machine costs $382,000 and is expected to have a useful life of ten years, with a terminal disposal value of $47,000. Savings in cash operating costs are expected to be $79,000 per year. However, additional working capital is needed to keep the machine running efficiently. The working capital must continually be replaced, so an investment of $22,000 needs to be maintained at all times, but this investment is fully recoverable (will be "cashed in") at the end of the useful life. Dunkin Lab's required rate of return is 12%. Ignore income taxes in your analysis. Assume all cash flows occur at year-end except for initial investment amounts. (Click the icon to view the present value factor table.) (Click the icon to view the present value annuity factor table.) Required PV Factor Net Cash Total Present at i=12%, n=10 Inflow Value Net present value Present value of annuity of equal annual net cash inflows 5.650 X $ 446,350 $ 79,000 per year = $ 47,000 0.322 15,134 Present value of terminal disposal value Present value of working capital 0.322 7,084 $ 22,000 Net initial investment (404,000) $ 64,568 Net present value Requirement 2. Calculate internal rate of return Use a trial-and-error approach and straight-line interpolation as necessary. The IRR (internal rate of return) is %. (Round all present value calculations to the nearest whole dollar and round the IRR to two decimal places, X.XX%.)Step by Step Solution
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