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Wendell's Donut Shoppe is investigating the purchase of a new $15,752 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings of $2,643 per year. In addition, the new machine would allow the company to produce one new style of donut, resulting in the sale of 1,600 dozen more donuts each year. The company realizes a contribution margin of $1.10 per dozen donuts sold. The new machine would have a six-year useful life.
1) What would be the total annual cash inflow s associated with the new machine for capital budgeting purposes?

Total annual cash inflows- $4403

2)Find the internal rate of return promised by the new machine%

3)In addition to the data given previously, assume that the machine will have a $7,404 salvage value at the end of six years. Under these conditions, compute the internal rate of return.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9958716

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