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Wendell s Donut Shoppe is investigating the purchase of a new $ 5 2 , 1 0 0 donut - making machine. The new machine
Wendells Donut Shoppe is investigating the purchase of a new $ donutmaking machine. The new machine would permit the company to reduce the amount of parttime help needed, at a cost savings of $ per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of dozen more donuts each year. The company realizes a contribution margin of $ per dozen donuts sold. The new machine would have a sixyear useful life. Click here to view Exhibit B and Exhibit B to determine the appropriate discount factors using tables. Required: What would be the total annual cash inflows associated with the new machine for capital budgeting purposes? What discount factor should be used to compute the new machines internal rate of return? Note: Round your answers to decimal places. What is the new machines internal rate of return? Note: Round your final answer to the nearest whole percentage. In addition to the data given previously, assume that the machine will have a $ 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. Note: Round your final answer to the nearest whole percentage.
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