Wendells Donut Shoppe is investigating the purchase of a new $40,000 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,200 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 2,000 dozen more donuts each year. The company realizes a contribution margin of $2.40 per dozen donuts sold. The new machine would have a six-year useful life.
Determine the appropriate discount factor(s) by 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 machines internal rate of return? (Round your answers to 3 decimal places.)
3. What is the new machines internal rate of return? (Round your final answer to nearest whole percentage.)
4. In addition to the data given previously, assume that the machine will have a $10,515 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 nearest whole percentage.)
EXHIBIT 13B-1 23 962 0.952 0.943 0.935 0.926 0.917 0.909 0.9 893 0.885 0.877 0.870 0.862 0.855 0.847 0 0.833 0.826 0.820 907 0.890 0.873 0.857 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.524 0.512 499 0.482 0.467 0.451 0.437 0.423 0.410 855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 636 0.613 0.592 0.572 0.552 0.534 0.516 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.51 76 0.456 0.437 0.419 0.402 0.386 0.370 0.355 0.341 0.3 790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 10 0.390 0.370 0.352 0.335 0 0.303 0.289 0.275 0 0.314 0.296 0.279 0.263 0.249 0.235 0.222 0.210 0.249 0.233 0.218 0.204 0.191 0.179 0.168 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0.167 0.155 0.144 0.134 676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.149 0.137 0.126 0.116 0.107 52 0.425 0.400 0.376 0.354 0 677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0 460 0.424 0.391 0.361 0.333 0 45 0.592 0.544 0.50 50 0.585 0.527 0.475 0.429 0.388 0.350 0 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.14 12 0.103 0.094 0.08 92 0.083 0.076 0.06 625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.2 13 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.16 168 0.152 0.137 0.124 0.112 0.102 145 0.130 0.116 0.104 0.093 0.084 0.075 0.068 0.061 0.055 14 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 183 0.160 0.140 0.123 0.108 0.095 0.084 078 0.069 0.062 17 0.362 0.315 0.275 0.239 0.209 065 0.057 0.051 0.045 0.040 0.035 163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 0.042 0.036 0.032 0.028 052 0.045 0.039 0.034 0.030 0.026 0.023 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.032 0.028 0.024 0.021 0.018 0.394 0.339 0.292 0.252 0.218 0.1 13 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.277 0.232 0.194 0.164 0.138 0.116 0.098 o.083 0.070 0.060 0.051 0.043 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 o.016 0.014 0.012 031 003, 032 03 0.022 0.018 0.015 0.013 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 0.022 0.018 0.015 0.013 0.011 0.009 0.007 009 0.007 0.006 O.082 O.066 O.O53 O.O43 O.035 O.O28 0.023 0.019 0.015 0.0 13 0.O 10 O.008 O.007 O.006 O.OO5 13 0.010 0.009 0.007 0.006 0.005 0.004 0.093 0.077 0.064 0.053 0.044 0.037 0.031 22 23 0.406 0.326 0.262 0.211 0.170 0.138 0.112 0.0 0.390 0.310 0.247 0.197 0.158 0.126 01 0.375 0.295 0.233 0.184 0.146 074 0.060 0.049 0.040 0.033 0.027 0.022 0.018 0.015 0.012 0.010 116 0.092 0.074 0.059 0.047 0.03 030 0.024 0.020 0 0.006 0.005 0.004 0.003 27 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 0.135 0.106 0.084 0.066 0.053 0.033 0.026 0.021 0.017 0.014 0.011 0.009 333 0.255 0.196 0.150 0.116 0.090 0.069 0.054 0.042 0.033 0.02 020 0.016 0.012 0.010 0.008 0.006 0.005 0.004 0.243 0.185 0.141 0.107 0.082 0.063 0.048 0.037 0.029 0.022 0.017 0.014 0.011 0 0.006 0.005 0.004 0.003 0.002 0.002 0.002 0.009 0.007 0.005 0.004 0.003 0.003 0.002 0.002 0.001 30 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.0 0.208 0.142 0.097 0.067 0.046 0.032 0.022 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 13B-2 Present Value of an Annuity of $1 in Arrears: 1+ 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 0.870 0.862 0.8550.847 0.840 0.833 0.826 0.820 0.813 0.806 0.800 668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 1.509 1.492 1.474 1.457 1.440 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981 1.952 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.926 2.864 2.803 2.745 2.689 2 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1. 3 4 5 6 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161 8 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421 3.329 9 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.463 10 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 3.799 3.682 3.571 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 4.177 4.035 3.902 3.776 3.656 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.7 15 4.533 4.362 4.203 4.053 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 5.229 5.008 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 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153 4.001 3.859 14 15 16 17 18 19 20 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 4.059 3.910 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5877 5.584 5316 5.07O 4.843 4635 4412 42634097 3942 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 4.657 4.460 4.279 4.110 3.954 21 14.029 12.821 11.764 10.836 10.017 9.292 8.649 8.075 7.562 7.102 6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963 22 14.451 13.163 12.042 11.061 10.201 9.442 8.772 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 3.970 23 14.857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5432 si67 4925 4703 499 43m1373.9G 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7.784 7.283 6.835 6.434 6073 5.746 5451 5.1824.937 4713 450743184143 3931 25 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 4.721 4.514 4.323 4.147 3.985 26 27 28 29 30 15.983 14.375 13.003 11.826 10.810 9.929 9.161 8.488 7.896 7.372 6.906 6.491 6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328 4.151 3.988 16.330 14.643 13.211 11.987 10.935 10.027 9.237 8.548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734 4.524 4.332 4.154 3.990 7.984 7.441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 3.992 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 8.022 7.470 6.983 6.551 6.166 5.820 5.510 5.229 4.975 4.743 4.531 4.337 4.159 3.994 4.534 4.339 4.160 3.995 051 10.116 9.30 16.663 14.898 13.406 12.137 292 65 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 4.746 40 19.793 17.159 46 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 6.23 71 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999 1. Annual cash inflows 2 Discount factor 3. Internal rate of return 4. Internal rate of return
