Reference no: EM131786737

Problem - Wendell's Donut Shoppe is investigating the purchase of a new $46,200 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,800 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,500 dozen more donuts each year. The company realizes a contribution margin of $2.00 per dozen donuts sold. The new machine would have a seven-year useful life. (Ignore income taxes.)

Requirement 1: What would be the total annual cash inflows associated with the new machine for capital budgeting purposes?

Requirement 2: Find the internal rate of return promised by the new machine. (Round your answer to the nearest whole percent.)

Requirement 3: In addition to the data given previously, assume that the machine will have a $13,200 salvage value at the end of seven years. Under these conditions, compute the internal rate of return. (Hint: You may find it helpful to use the trial-and-error process; find the discount rate that will cause the net present value to be closest to zero.) (Round your answer to 2 decimal places)