Answered Essay: Exercise 13-3 Internal Rate of Return [LO13-3] Wendell's Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The ne

Exercise 13-3 Internal Rate of Return [LO13-3] Wendells Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,700 per year. In addition, the new machine would allow the company to produce one new style of donut resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.50 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 138-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes Annual savings in part-time help Added contribution margin from expanded sales Annual cash inflows 2. Find the internal rate of return promised by the new machine to the nearest whole percent. Internal Rate of Return Choose Numerator: / Choose Denominator: Factor Number of years Internal rate of return Factor
media%2F9e2%2F9e27cc2d-59e6-4cf2-9f90-e0

Exercise 13-3 Internal Rate of Return [LO13-3] Wendell’s Donut Shoppe is investigating the purchase of a new $42,800 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $5,700 per year. In addition, the new machine would allow the company to produce one new style of donut resulting in the sale of 2,500 dozen more donuts each year. The company realizes a contribution margin of $1.50 per dozen donuts sold. The new machine would have a six-year useful life. Click here to view Exhibit 138-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What would be the total annual cash inflows associated with the new machine for capital budgeting purposes Annual savings in part-time help Added contribution margin from expanded sales Annual cash inflows 2. Find the internal rate of return promised by the new machine to the nearest whole percent. Internal Rate of Return Choose Numerator: / Choose Denominator: Factor Number of years Internal rate of return Factor

Expert Answer

 

1 Annual cash flows from new machine
Savings in part time help $5,700
Contribution margin from expanded sales
(2,500*$1.5)
$3,000
Annual Cash flows $8,700
2 Internal rate of return
At IRR present value of cash inflows=Present value of cash outflows
Present value of cash outflows= $42,800
Present value of cash inflows = (Annual cash flows *Annuity factor at IRR for 6 years)
Annuity factor = present value of cash outflows/Annual cash outflows
($42,800/$8,700) = 4.92
Annuity factor for 6 years equal to 4.92 at 6%
Therefore IRR = 6%
3 Internal rate of return
Assume IRR = 10% and check
Year Cash flows P.V factor @ 10% Discounted cash flows
1 $8,700 0.909 $7,909.17
2 $8,700 0.826 $7,189.68
3 $8,700 0.751 $6,536.31
4 $8,700 0.683 $5,942.10
5 $8,700 0.621 $5,401.83
6 $8,700 0.565 $4,911.15
6 Salvage value $16,280 0.565 $9,190.06
P.V of cash inflows $47,080.30
Assume IRR = 13% and check
Year Cash flows P.V factor @ 13% Discounted cash flows
1 $8,700 0.8850 $7,699.12
2 $8,700 0.7831 $6,813.38
3 $8,700 0.6931 $6,029.54
4 $8,700 0.6133 $5,335.87
5 $8,700 0.5428 $4,722.01
6 $8,700 0.4803 $4,178.77
6 Salvage value $16,280 0.4803 $7,819.59
P.V of cash inflows $42,598.27
P.V of cash outflows $42,800
Therefore p.v of inflows almost equal to p.v of outflows so IRR is 13%
Ans) IRR=13%
Buy Essay
Calculate your paper price
Pages (550 words)
Approximate price: -

Help Me Write My Essay - Reasons:

Best Online Essay Writing Service

We strive to give our customers the best online essay writing experience. We Make sure essays are submitted on time and all the instructions are followed.

Our Writers are Experienced and Professional

Our essay writing service is founded on professional writers who are on stand by to help you any time.

Free Revision Fo all Essays

Sometimes you may require our writers to add on a point to make your essay as customised as possible, we will give you unlimited times to do this. And we will do it for free.

Timely Essay(s)

We understand the frustrations that comes with late essays and our writers are extra careful to not violate this term. Our support team is always engauging our writers to help you have your essay ahead of time.

Customised Essays &100% Confidential

Our Online writing Service has zero torelance for plagiarised papers. We have plagiarism checking tool that generate plagiarism reports just to make sure you are satisfied.

24/7 Customer Support

Our agents are ready to help you around the clock. Please feel free to reach out and enquire about anything.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

HOW OUR ONLINE ESSAY WRITING SERVICE WORKS

Let us write that nagging essay.

STEP 1

Submit Your Essay/Homework Instructions

By clicking on the "PLACE ORDER" button, tell us your requires. Be precise for an accurate customised essay. You may also upload any reading materials where applicable.

STEP 2

Pick A & Writer

Our ordering form will provide you with a list of writers and their feedbacks. At step 2, its time select a writer. Our online agents are on stand by to help you just in case.

STEP 3

Editing (OUR PART)

At this stage, our editor will go through your essay and make sure your writer did meet all the instructions.

STEP 4

Receive your Paper

After Editing, your paper will be sent to you via email.

× How can I help you?