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Henries Drapery Service is investigating the purchase of a new machine for cleaning and blocking...

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Question

Accounting

Henries Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $137,320, including freight and installation. Henries estimated the new machine would increase the companys cash inflows, net of expenses, by $40,000 per year. The machine would have a five-year useful life and no salvage value.

Required:

1. What is the machines internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.)

2. Using a discount rate of 14%, what is the machines net present value? Interpret your results.

3. Suppose the new machine would increase the companys annual cash inflows, net of expenses, by only $38,090 per year. Under these conditions, what is the internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be considered as 12%.)

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