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Wendell's Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new machine would permit the company to reduce the amount of
Wendell's Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time heip needed, at a cost savings of $3,800 per year. In addition. the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,000 dozen more donuts each year. The company realizes a contribution margin of $1.20 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit.7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cosh inflows associoted with the new machine for capital budgeting purposes? Note: Round your final snswer to the nearest whole dollar amount. 2. What discount factor should be used to compute the new mochine's internal rate of retum? Note: Round your answers to 3 decimal pleces. 3. What is the new mochine's internal rate of return? Note: Round your answer to the neerest whole percentage, i.e. 0.123 should be considered as 12%. 4. In addition to the dato given previously. assume thot the machine will have a $9,125 solvdge volue 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 opproach; find the discount rote that will couse the net present value to be closest to zero the Note: Round your answer to the nearest whole percentege, i.e. 0.123 should be considered as 12%, EXAIIIT 7B-2 Precent Value of an Ananity of 51 in ArTesn; 1r[11(1+r)n]
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