Henries Drapery Service is investigating the purchase of a new machine for cleaning and blocking...
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Henries Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $102,990, including freight and installation. Henries estimated the new machine would increase the companys cash inflows, net of expenses, by $30,000 per year. The machine would have a five-year useful life and no salvage value. Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using table.
Required: 1. What is the machines internal rate of return? (Round your answer to whole decimal place 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 $27,170 per year. Under these conditions, what is the internal rate of return? (Round your answer to whole decimal place i.e. 0.123 should be considered as 12%.)
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